In recent weeks, the situation on the international capital markets has once again become more serious. After the negative trend in Q1 and Q2, stocks and bonds recovered in July and August, only to fall to annual lows in September.
Interest rate hikes
The trigger for this new negative trend is primarily the interest rate hikes forced by high inflation, which were first implemented by the US Fed (interest rate currently at 3-3.25%), followed by central banks around the world.
Now they are fighting what they started with the loose monetary policy since March 2020. The goal is to bring the current inflation of 6-8% (US and EU) back towards the desired 2%.
In June, the largest interest rate hike in the US since 1994 was implemented, which was followed by 2 more hikes and with the utmost probability a 3rd hike will also take place in November.
It usually takes 6-9 months for these interest rate hikes to take full effect. There will be a slight recession, which could also cause the unemployment rate to rise slightly.
However, the global economy is doing very well again, so consumer goods and labor are in short supply. Industry leaders are reporting huge sales increases this year.
In the U.S. and EU, the unemployment rate hit historic lows in the summer of 2022 as additional workers were needed due to the travel boom.
Supply chain issues are also on the decline.
Not to be ignored are the tensions between China and Taiwan with the US also heavily involved. What impact the Taiwan conflict will have on world markets cannot yet be accurately calculated.
Annoying is currently that stocks and bonds both run poorly, making risk hedging difficult. The real estate markets are not being spared either. Currently, the decline across all asset classes is 15-20%.
Gas prices falling
Growing inventories for the winter are calming concerns about dependence on Russian gas (benchmark futures fall 5.7%), this is the 4th consecutive week of declines. Still, gas prices are currently six times higher than normal at this time of year.
Can the market go even lower? It can and it very likely will (since the FED has to raise rates to 3.75-4.00% on November 2, but at least 3.50-3.75%).
In such times it is advisable to invest in companies that have market dominance, are rock solid and generate positive cash flow in almost all market situations (e.g. anti-cyclical consumer goods such as food, telecommunications etc.).
Our tip: Take advantage of the Dollar Cost Average effect by buying in tranches (e.g. every 4-5% drop in value), so as not to invest everything at once and thus reach for the falling knife.