Daily Brief: Spooked Investors Are Fleeing The US Stock Market

Daily Brief: Spooked Investors Are Fleeing The US Stock Market

over 1 year ago3 mins

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Data out from the Bank of America (BoA) on Friday showed that investors are fleeing US stock markets.

What does this mean?

The US has vehemently denied it’s in a recession, but the facts speak for themselves: the country already entered a “technical recession” – when an economy shrinks for two quarters in a row – last quarter. Looks like investors are choosing fact over fiction: BoA said the current mood in stock market circles is “appalling”, with investors scared off by rampant inflation, mounting interest rates, and the prospect of a long slowdown. That probably explains why investors pulled nearly $11 billion out of US stock funds in the first week of September, close to the $15 billion lost by global equity funds in the same period. That’s the biggest mass exodus for nearly three months, and it certainly wasn’t helped by the almost $2 billion that was snatched out of particularly interest rate-sensitive tech stocks.

US equity outflows

Why should I care?

For markets: Hope for the best, brace for the worst.

Deutsche Bank’s settled on two likely outcomes for this whole debacle. The best-case scenario sees inflation slowing down, the market floating back to its previous highs, and the S&P 500 bouncing back 20% before the year’s end. But then there’s the worst case: if the US does fall into an official recession then investors are likely to really bow out, which could send the S&P 500 down by a shudder-inducing 25%.

US technical recession

For you personally: Is this… a good thing?

BoA’s tailor-made “bull and bear indicator” is flashing all the way bearish right now, meaning investors are essentially the most pessimistic toward the stock market as they could be. And while that sure sounds like a bad sign, professional investors have historically seen these signals as “contrarian indicators” that could hint at an incoming rally. So in essence, all this bad news could be a blessing in disguise for you savvy bargain-seeking investors out there.

SP 500 down

Keep reading for our next story...

China’s Inflation Slowed Down

China image

Data out on Friday showed that China’s inflation slowed in August.

What does this mean?

While consumers in the US and Europe have been dealing with dizzying inflation, China’s been sitting pretty with much gentler price increases than those in the West. Sure, the country’s all-important pork prices spiked over 22% last month from the same time last year, and food prices surged 6.1% on the back of that. But locked-down consumers cut back in other areas, meaning August’s consumer prices were up a lower-than-expected 2.5% from the year before, a slowdown on July’s 2.7%. And producer prices – that is, the prices paid by factories and businesses – kept in step: after all, slipping commodity prices mean raw materials are cheaper right now. That might be why August’s producer prices climbed just 2.3% – the slowest rise in a year and a half.

China inflation
Source: SCMP, NBS

Why should I care?

For markets: Stimulation’s incoming.

China’s economy has admittedly seen better days, and while some of the blame lies with the country’s unshakeable loyalty to its own industry-stalling zero-Covid policies, some does lie with lower demand due to the global economic slowdown. But these figures are actually pretty reassuring: they'll allow the government to roll out stimulus measures to support growth without having to worry about spiraling prices. That might explain why eager investors sent the country’s CSI 300 stock index up 1.1% in the wake of the news.

The bigger picture: Let there be light.

China’s already on its way to fixing the issue of power shortages: the country’s reportedly toying with the idea of building more coal-fired power plants than previously planned. That might run counter to its climate goals, mind you, which are already contending with the fact that China opened more coal plants than the rest of the world combined last year.

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