Still stumbling from the Russia-Ukraine conflict and COVID-19, the global economy appears uncertain and weak. That the three leading economies – the US, Europe, and China – amid this economic slow-down is making the situation direr. The world has not even recovered from the last recession, and yet another one appears on the blink.
This makes many investors wonder if there are signs of an economic slowdown and if the situation will be worse at the end of the year. This article will look at these concerns closely, especially concerning the interest rate and stock markets relationship.
The Global Economy in Problems
The global economy has been on a downward trend since April this year. According to a recent report by the World Economic Outlook Update, global growth will be at 3.2% in 2022, significantly lower than 6.1% last year.
Several stumbles have already dealt a blow to the economy recently: global inflation that has exceeded expectations; ripple effects from the war in Ukraine; and extensions of COVID-19 lockdown repercussions.
The Organization for Economic Co-operation and Development (OECD) recently reported that growth will be subdued a little longer, with Germany expected to enter a recession in 2023.
For the stock market, it was a gloomy end to the week as the leading indices fell. Investors were seeking to exit the market in droves. Warnings from the Federal Reserve seem to have had an immediate impact, with the Dow, S&P 500, and Nasdaq all losing on Friday.
Are there chances of recovery in 2022?
According to the OECD report, there are signs of economic slowdown in Europe and even beyond. Germany will gain at least 1.2% growth, although there can be a recession in 2023. Italy, Spain, and France will perform better as the year closes. There will also be growth in Mexico, Argentina, Canada, and Japan, albeit on small margins. Still, uncertainty looms large over these predictions amid higher fuel shortages that could shrink the growth points.
In the stock market, experts explain that the drop will eventually reach a point where a buy-low opinion will grow. That’s when the market will stabilize and traders will start looking at stocks again. Analysts believe that this situation will only occur close to 2023. Therefore, stock market traders better brace themselves for tough times until the end of the year.
Positioning for the slow-down
Volatility in the stock market is common and is evident today. The biggest piece of advice for any stock investor is to maintain a long-term strategy. One of the reasons for this approach is that there is probably nothing like a bad timing of the market. It is virtually impossible to tell when the market will reach rock bottom or rise. It is better to stay the course than risk paying the price of bad timing, which includes buying high.
It is also worth noting that a long-term positioning strategy makes sense, particularly if one has invested in a quality company. Most of these companies mostly perform better during times of economic turmoil, such as now. They will most likely even emerge stronger after the economic slowdown. The only problem is that this recovery may take some time, and test the patience of the stock trader.
A look at the history of the stock market reveals that three downward spirals are usually followed by a recovery. Exiting the market now may mean a miss of the best days with the biggest impact. Yes, this slowdown may progress until the end of the year and beyond, but the eventual returns can be attractive.
During this latest economic slowdown, the most important point to remember is that highs and lows in the stock market are normal. One may not want to base their exit decisions on volatility, or at least on this element alone. Even during volatility, it is possible to take of investment opportunities that emerge. Modern methods of stock trading make the situation even more bearable.
