Unwinding previously large war positioning and encouraging the joining of the ‘buy the dip’ fanatics. I say fanatics because over the past two years buying any dip regardless of the reason for it has reached almost cult status.
Across social media and the mainstream media, the idea that stocks are invincible long-term has never had a more committed following.
People have short memories. For it is possible for down-turns to last several years.
We do not know yet whether the current 2022 correction, which has so far been severe, has now completed itself or is just having a temporary upward correction on the immediate end of war hopes.
Such hopes appear overly optimistic.
China has delivered a specific outline of their policy path forward regarding Ukraine. Focussing on humanitarian aid to Ukraine, stating its desire for peace, while maintaining economic ties with Russia and its alliance there.
There was nothing new in what China has said in the past few days to what it has been saying all along.
China desires a cease-fire and peace while maintaining its alliance with Russia.
For markets to spin this into because China will not militarily help Russia the war will soon come to an end, is highly mistaken. Russia had already decided on a strategy that did not require China’s support.
Given the extreme degree of isolation of Russia by the western community of governments and business, though not to the same degree by the rest of the world, President Putin will increasingly be seeing the current situation as his having to go all in.
Such a cornering of both the nation and the leader of Russia is unlikely to see any giving up of territory already taken in current “peace” talks. This is what Ukraine demands even though now belatedly saying it would accept a form of neutrality.
The reality of war on the ground remains a human tragedy of horrific proportions. Sadly akin to all other wars. This pain does not appear likely to come to a hopeful sudden cessation.
It is not a pleasant thing to say, but it looks like the war will continue for some time while the economic disruption of Europe is only just beginning.
While stocks are reversing war trends, the Euro and Oil are again looking vulnerable.
Markets remain unsettled. The very strong equity market rally looks like it can continue, but in the background, the European slow-down and food and energy price shocks globally are only just beginning. Even if the war were to end as hoped by us all.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
