As expected, the rally by US stock speculators was immediately overwhelmed by real investor money that simply wants to exit. Period.
This has been a major shake out for US equity markets and there appears no end in sight at this point.
There is no law, economic or moral, that says if you invest in markets, you will be rewarded. This is something a whole new breed of young investors are suddenly learning. The notion that you just keep buying because it will always go up, regarding any market, is a false one.
There is certainly a feeling in the air now among both seasoned and new investors that this downturn across all stocks could be with us for some time.
My view, since the start of the year, was that we will have a 6-18 month correction period, but we should all be very aware of the possibility that this is in fact a major quantum 3-6 year stock market collapse.
If this is the case, the total decline for the US stock market is more likely to be close to 50%. Perhaps 60%. Leaving a lot of room to fall still from current levels.
Traders and investors need to be mindful that in modern times the global economic picture has never been so challenging.
Energy crisis continues
The energy crisis continues to build in the background. The US can only at best replace 30% of the Russian gas flow. That Russian flow to Europe is immediately threatened by maintenance issues brought on by difficulty in getting parts from the West. Russia has said.
The provision of available gas supplies to Europe also leaves the USA badly exposed to higher prices and shortfalls.
The modern economy cannot function without energy. The race to secure those supplies will further add to higher prices and therefore ever greater economic pain.
Globally the impact of ever-higher food and energy prices is only in its early stages. There is much worse still to come. This is immediately felt everywhere.
The current valuation of US and western stock markets, in general, is arguably still excessive in the context of a slowing global economy.
Another housing bubble in the US?
With higher interest rates comes increased mortgage stress. We just saw US Housing Starts collapse from their 16-year highs. Another sign of a housing bubble is in the process of bursting.
Combine a global energy crisis with renewed risk of property price corrections, and you have a retrenched consumer and cessation of fresh business investment.
What price should stocks be in a global recession?
Investors should continue to move to protect their investment portfolios as we have advised all year.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
