The Bearish US Market Claws at other Global Markets

Soham Aher, Senior Correspondent, India

12.00am EST, 30 January 2022

Over the holiday-shortened week, rising interest rate jitters and economic concerns led the S&P 500 Index to its largest drop in more than 14 months. (Monday's markets were closed in celebration of Martin Luther King Jr.'s birthday.) The Nasdaq Composite Index fell 7.5 percent this week, it’s a worst weekly decrease since the outbreak began. Financial services stocks were hurt by declines in financial behemoths JPMorgan Chase and Goldman Sachs. Markets are getting more volatile as investors try to assess the impact of everything from Fed tightening to the impact of the pandemic and geopolitics such as Russia-Ukraine. The CBOE Volatility Index, or VIX, finished just under 30 points, compared to a historical average of roughly 19.5. The average projection for the S&P 500 by the end of the year, as reported by Bloomberg, is 4,982, compared to its Monday finish of 4,410.13 — but given the gauge just avoided a fall on Monday, many market observers are likely rethinking their forecasts.

The United States is pessimistic on the stock market, with "rates shock" in 2022 following "inflation shock" in 2021 and "growth shock" in 2020. Wall Street and/or policy actions are expected to tighten financial conditions. Rates and profits influence asset prices. In the coming year, capital preservation will become more of a focus.

This bearish US market impacted worldwide markets as they led to several economic policy actions in response to Fed and Stock markets in the United States. Europe and Asia were impacted the most across the globe as such economic conditions were influential in determining the activity of such global markets.

As expectations mounted that the European Central Bank (ECB) will raise interest rates this year and that the Bank of England (BoE) would need to tighten its monetary policy, European stocks ended down. The pan-European STOXX Europe 600 Index declined 1.40 percent in local currency. These falls in each of the respective European markets help investors visualize how the US markets have been increasingly influential in the first quarter of 2022. The changes in economic policy are also foreseen to be indirect actions from the actions of the US.

During the early hours of Tuesday, Asian markets were tracking US stock futures while posting losses. Prior to Wednesday's Federal Open Market Committee (FOMC) meeting, market sentiment has deteriorated due to inflation and geopolitical concerns. Monetary policy in the Asia Pacific region will continue to diverge next year as rich countries raise rates to battle inflation and emerging economies keep rates low, according to a new report. The Reserve Bank of New Zealand will lift the benchmark rate by 125 basis points to 2.25 percent, with the Bank of Korea to announce two 25 basis-point hikes to bring the policy rate to 1.5 percent, Oxford Economics predicts.

The Reserve Bank of India is also expected to raise its policy rate by 25 basis points in the first quarter to 4 percent. Southeast Asian economies including Malaysia, Thailand, and the Philippines are considered unlikely to raise rates before 2023 due to gross domestic product remaining 4-6 percent below pre-pandemic levels. This illustrates how the Asian markets were impacted by the events taking place in the United States.