Russian President Vladimir Putin’s decision on Monday to recognize two breakaway regions in eastern Ukraine and deploy troops there has heightened Western fears of a major war in Europe and made the outlook much more difficult. plan.
With most of the world’s central banks now engaged in the pursuit of consumer price inflation – multi-decade highs in many post-pandemic economies – the double-digit annual increases in stock prices in recent years already seemed unlikely.
“The development of the situation in Ukraine is paramount at this time – especially if a further escalation of the situation worsens the rise in energy prices in Europe and around the world, as this leaves a backdrop of difficult costs. ‘higher inputs that central banks cannot realistically address with policy tightening,’ the Saxo Bank strategists wrote.
Most major stock indexes are in the red for the year or barely up. Much will depend on the ripple effect of the situation in Ukraine, which has already pushed the price of crude oil close to $100 a barrel, on inflation and activity.
Even before tensions escalated, more than 80% of analysts – 69 out of 82 who answered a supplementary question – said inflation would have a big or very big impact on corporate earnings this year. The other 13 said it would be insignificant.
The Reuters survey conducted from February 11-21 of stock market strategists, brokers and fund managers also found that most participants have downgraded their annual earnings forecasts for most major indices compared to the survey. previous, three months ago.
Of the 17 major equity indices surveyed, the medians show that analysts have revised up forecasts for only three of them for the end of 2022, compared to the previous survey published on December 2.
The British FTSE 100 index was the only major index to be revised upwards. Brazil’s BOVESPA index and Mexico’s S&P/BMV IPC equity index were also revised higher, although they were only marginally revised based on the median forecast of a slightly smaller sample.
In the United States, the benchmark S&P 500 index is expected to gain around 11.5% by the end of 2022, which will barely allow it to recover its losses of around 9% since the start of the year. In Canada, the index will gain 5.6%, according to the survey.
Japan’s Nikkei is expected to rise 11.9% from Monday’s close to reach 30,100 by the end of the year. This figure is lower than the previous survey’s forecast of 31,000.
“The stock market environment is expected to remain exceptionally dependent on geopolitical developments and inflation, which could trigger significant market volatility in the weeks and months ahead,” UniCredit analysts said.