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The calendar changed but the problems remained. The markets remained volatile amid high uncertainty about the outlook. To be more precise, investors fear:
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- Recession. Despite the optimistic data on the US and EU GDP growth in Q3, the IMF expects a deterioration in business activity this year. Overall, “this year is going to be tougher on the global economy than the one we have left behind.”
- Inflation. The head of Scion Asset Management, Michael Burry, doesn’t discount yet another wave of higher consumer prices as a result of the stimulus packages. In other words, regulators could end up with what they had been striving for.
- Weak earnings. In addition to chip shortages and supply chain disruptions, a drop in demand may contribute to companies’ profit margins. Tesla, for example, has already faced a shift in consumption patterns. Instead of the projected 431,000, the company delivered 405,000 cars in Q4.
- A spike in Covid cases. The cancellation of China’s zero-tolerance policy for coronavirus is a double-edged sword. On the one hand, the removal of restrictions will serve as an impetus for economic growth. On the other hand, it could lead to business disruptions amid growing cases of infections.
What is next?
Although it has been a turbulent beginning of the year for the stock market, the total collapse is not “in the cards” yet. For a full-fledged comeback, the ground beneath the feet of investors must tremble. Triggers in this sense could be a slide of the U.S. economy into recession or a deterioration of the geopolitical situation in the world. As of the moment, such a scenario doesn’t currently seem possible.
