Is the stock market crash the beginning of something worse?
In the United States, the Federal Reserve has been gradually raising interest rates for some time now, and it is expected to continue doing so this year under the leadership of the new chairman Jerome Powell. Investors fear that the expansionary fiscal policy, primarily the tax cuts enacted by President Donald Trump, will overly heat the economy, unexpectedly raising inflation rates and forcing the Federal Reserve to accelerate the pace of interest rate hikes.
However, rising interest rates make government bonds and corporate bonds more attractive compared to stocks, and high interest rates can negatively affect economic growth. Ulrich Kater, chief economist at Dekabank, explained that "the strong rise in interest rates will not be good for the markets or the economy." In the United States, the Federal Reserve has been gradually raising interest rates for some time, and it is expected to continue doing so this year under the leadership of new chairman Jerome Powell. Investors fear that expansionary fiscal policy, led by tax cuts enacted by President Donald Trump, could overheat the economy, unexpectedly raising inflation rates and forcing the Federal Reserve to accelerate the pace of interest rate hikes.
Expert Thu Lan Nguyen from Commerzbank pointed out that the latest jobs report in the United States revealed a surprising rise in wages, which supports these concerns. As for the Eurozone, no changes in interest rate policies are expected soon. The President of the European Central Bank, Mario Draghi, has dampened savers' hopes for a near-term rate hike, stating: "Based on current data, I see a slim chance of a rate hike this year." Despite good economic growth, inflation remains weak, with prices rising only 1.3% in January compared to the previous year, which is below the central bank's target of around 2%.
The US markets have recently experienced sharp fluctuations, with the Dow Jones index dropping by nearly 1600 points in just a few minutes, known as the "Flash Crash" phenomenon. This is attributed to trading algorithms that trigger automatic sell waves when certain price levels are breached, accelerating the decline. Portfolio manager Thomas Altman from QC Partners explained that the "stop orders" used by investors to protect themselves from losses also contributed to the rapid collapse.
Despite this decline, experts do not expect it to be the beginning of a long-term collapse. Economist Ulrich Kater says: "What happened is a correction, but it is not a collapse or the beginning of a bear market." He added that this decline will attract those who previously left the market to return. Experts at Berenberg Bank believe that markets are on their way to returning to normal after a period of excessive rise, considering that the rise in bond yields simply reflects a return to normal levels of economic growth and inflation.