Can Global Stock Index Prices Bear Markets in the Next Decade?
Global stock indexes have recently caught a very turbulent environment with a highly volatile market for both long-term investors and short term traders since late 2021, owing to the ongoing trade dispute between the US and China. Since the two countries began discussing their trade issues in late November, stock markets around the globe have suffered unprecedented declines. Additionally, China’s government has been outspoken in its criticism of the US’s move, with warnings from state media that the country will take measures to protect itself from the losses. However, the short-term market volatility and market depth in China have also contributed to this stock market downfall.
Short term financial analysts and researchers expect that this war-of-words will continue until the Chinese premier is able to get his/her hands on enough economic leverage. In addition, analysts are saying that a record-high stock market index for bonds is unlikely to be established during the current spat between the two countries. With these reports, global bond yields have risen over the three months to ten-month lows, breaking the previous record high of eight month. The higher bond yields imply that investors are expecting more rate cuts in the US while banks continue to tighten their loan requirements for mortgage borrowers. However, experts say that rates cuts are still far away from being implemented, meaning that bond yields should stay low for quite some time.
The US dollar index, which includes the dollar, British pound, euro, Japanese yen, Swiss franc, Canadian dollar and Australian dollar, has experienced a sharp increase over the last two weeks. The global stock averages experienced a similar replacement, with some stocks experiencing gains and others experiencing losses. The recent developments in international trade relations has also triggered a series of dramatic events within the markets over the last week. These include the release of the global trade report, global credit report, global QE report and the FOMC report, all of which resulted in a sharp retracement in stock prices.
During the past two weeks, the global stock indexes have seen a large number of bear markets with declines of over forty percent. However, the recent uptrend in stocks has resulted in some major gains for some companies including General Electric (GE), Caterpillar (CAT), P & G (PG) and Wal-mart (WMT). In addition, oil prices have surged over the past two weeks, resulting in double digit gains for oil companies like Royal Dutch Shell, Exxon-Mobile and BP. Analysts expect oil stocks to continue their uptrend in the coming months.
Bond yields, which include the yield on the benchmark debt instrument, have experienced sharp decreases over the last two weeks. The two most affected are the junk bond yield and the country risk bond yield, both of which declined by over five percent in the last two weeks. The global bond indexes experienced a small but significant decline, or decrease, in the prior trading week, resulting in investors re-allocating their assets to cover for the sold positions.
While the current uptrend in global stock indexes is expected to continue, analysts expect a muted response during the second half of the year. The first quarter of this year was an unusually cold month for stock market retracement with all markets except for the energy index, which saw a minor increase. Although investors have speculated that the sudden reversal of the market during the second week could be a short term replacement, some market watchers are speaking about the possibility of a long term replacement, saying that the market is overbought and will correct during the second half of the year. If correct, this would be a significant turnaround for the markets, which have been far too aggressive during the first few months of this year.
Although the second half of the year looks to have a muted retracement, the markets could undergo a much more significant correction during the third week of the year. Markets have picked up steam and have picked up momentum over the last week, but if the market follows the pattern of the second half of the year, we may see a long awaited, massive correction like we saw during the second half of 2021. Markets will probably reverse and begin a period of consolidation or decline for the fourth to five years. This could bring about a much more significant global stock markets retracement.
Traders will have to pay attention to the economic recovery and inflationary expectations during the second half of the year. If the global stock averages bear markets in the third to fourth months of the year, it would signal that we are in for a large correction as traders look to sellers and buyers alike. If the market continues on an upward trend, it would indicate that investors have once again pulled off the brakes and are now expecting the economy to catch up to their expectations. If the market continues on a declining trend, it would signal that investors have once again pulled off the brake and are expecting the economy to catch up to their expectations. The market may not make another big move in the coming weeks and months.