Global stocks lose over $3.5 trillion during the past week on stagflation worries

Global growth seems more fragile than ever with Covid lockdowns in China, the European energy crisis, and high inflation, making it more likely for central banks to continue making policy decisions, which don’t automatically imply that they’re bulletproof. 

Since the US is also experiencing inflationary pressures and possible demand destruction, the Federal Reserve (Fed) could be forced to make another 75-basis-points rate hike for a third, unprecedented time.  

Facing a difficult investing environment, market participants have seemingly decided to pull out of risky assets, as global stocks lost $3.75 trillion last week, according to Welt’s Holger Zschaepitz. All stocks are now worth 100.6% of global GDP or $96.7 trillion.

“Global stocks have lost $3.75tn in market cap this week on stagflation concerns following a rise in US core inflation & accompanying rise in rates, a fall in business sentiment, and a profit warning from Fedex. All stocks are now worth $96.7tn equal to 100.6% of global GDP,” he noted.

Stagflation concerns

On September 15, Indermit Gill, Chief Economist of the World Bank, said that he is worried about a ‘generalized stagflation’ where low growth will be coupled with high inflation across the globe, which is the main reason the world bank cut growth forecasts for one-third of all countries. 

It is no wonder the Investment Management Index survey for September by S&P Global revealed that investors are anticipating near-term market losses due to various macro worries. Furthermore, the risk appetite index fell from -13% to now -16% indicating that markets are in a risk-off environment. 

Pockets of the market

Despite a souring mood on overall markets, there were some pockets of the markets that held up well throughout 2022 so far. The most prominent is energy, where firms like Occidental Petroleum (NYSE: OXY) are up over 107% year-to-date (YTD). 

IT and technology in general are enjoying a positive sentiment; however, share prices of high growth tech stocks have been bludgeoned in 2022.   

For investors in the market or those looking to get in, it seems the best bet is firms with high cash flows, strong competitive moats, and possibly a leadership role in their industry. Other more speculative plays, should perhaps be left for a different market environment.  

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