Global stocks post longest weekly losing streak since 2008 crash

Global stocks sank for the sixth week in a row as the threat of a US recession added to fears from investors grappling with runaway inflation, China’s coronavirus lockdowns and the US invasion of Ukraine. Russia.

The FTSE All-World Index is on its longest weekly losing streak since mid-2008, matching in duration the decline before the subprime mortgage crisis led to the catastrophic collapse of Lehman Brothers. A late bounce on Friday was insufficient to offset a brutal sell-off earlier in the week.

The index fell 2.2 percent this week, while the benchmark US S&P 500 index fell 2.4 percent and the tech-dominated Nasdaq Composite fell 2.8 percent.

Friday’s rally meant the S&P 500 narrowly avoided slipping into a formal bear market, when an index falls 20 percent from its recent highs. But few investors were prepared to end the recent volatility.

“When the moves are so erratic, it’s really dangerous to try to put on the market stopwatch hat and play that game,” said Matt Stucky, portfolio manager at Northwestern Mutual Wealth Management, which manages $237 billion. “Really, it will come down to whether or not the US economy is in a recession a year from now.”

The Federal Reserve’s efforts to combat inflation with higher interest rates have been putting pressure on stocks since the beginning of the year. The yield on 10-year US Treasuries has almost doubled since the beginning of the year, reducing the relative attractiveness of riskier assets such as stocks and weighing on corporate bond valuations.

The number of US stocks that fell to new 52-week lows topped 4,100 at one point this week, their highest level since March 2020. Highs for the week, according to FT calculations.

This week, even sectors that would normally benefit from higher rates also came under pressure. The S&P 500 financial subindex fell 3.6 percent as investors bet the addition to banks’ profit margins would be more than offset by a rise in loan delinquencies during a recession.

S&P 500 Sectors YTD Weekly Performance (%) bar chart showing that nearly 75% of S&P 500 stocks are down this week

Fed Chairman Jay Powell stressed earlier this month that the central bank “won’t hesitate” if it needs to take extreme measures to rein in inflation, warning this week that reining in inflation would cause “some pain.”

New data showing price rises barely slowed in April, adding to concerns that the Fed may not be able to achieve a so-called “soft landing” that would prevent an economic contraction.

“There is only one way out of this inflationary period that we are currently experiencing: a slowdown in economic activity,” said Florian Ielpo, multi-asset portfolio manager at Lombard Odier.

Growth concerns have also temporarily halted the recent rise in government bond yields. The search for safe assets as stocks fell pushed the 10-year Treasury yield 0.2 percentage point lower on the week to 2.93 percent. Lower yields reflect higher prices.

US concerns were exacerbated by disappointing updates from China, which is struggling to contain coronavirus outbreaks without severely damaging its economy. However, Shanghai’s CSI 300 recovered from a weak start to the week to finish higher, as did Europe’s Stoxx 600, which is less dominated by tech companies than the US market.

Some investors were optimistic that the bulk of any potential recession now rests on asset prices. T Rowe Price, the $1.4 trillion asset manager, has been gradually increasing his exposure to equities after starting the year underweight and rotating some of his holdings from defensive sectors, such as utilities, to harder hit areas. , such as industry and semiconductors.

“Markets are pricing in a very high probability of a very bad event developing; if it doesn’t, some of those cyclical stocks will re-rate massively higher, and if that happens, they’ve already discounted a lot of that,” T Rowe portfolio manager David Giroux said.

Giroux, who manages one of the firm’s flagship funds, forecast markets would remain volatile in the short term but said he was more optimistic about the long-term outlook.

“If you wait for certainty to come back, for everything to be clear, you will buy things that are already up 30 percent.”

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