Wind of panic on the financial markets. Weighted down by US inflation, almost all of the stock indexes turned red on Monday. Will the decline last? Should we sell everything before it’s too late? How to protect your wallet? Decryption.
After a gloomy weekend, the CAC40 meltdown continued on Monday. The flagship index of the Paris market closed the session 6,022 dotsdown from -2.67%. All sectors seem affected, and about 85% values are displayed in fallback. Same story across the Atlantic: the Dow Jones has given up 2.76%while the Nasdaq fell more than 4%.
The reason: the acceleration of inflation in the United States. In May, the rise in prices reached 8.6% on American territory. be its highest level for 40 years. Asked by Bloomberg, analysts were rather expecting inflation 8.3%, stable compared to April. For the markets, the pill has trouble passing.
Retirement : save by paying less tax. 11 contracts compared
The tau tightens
Because since the 2008 crisis, central banks have been continuously injecting money to support the global economy. However, this massive influx of liquidity, and the low interest rate environment that accompanies it, have largely contributed to the dynamism of equities, cryptocurrencies and real estate. But the situation is changing.
In 2018, we had already seen how interdependent financial markets and central banks are, points out Nicolas Chron, stratgist at Zonebourse.com. At the time, the global economy picked up, and central banks decided to raise their interest rates. Immediately, there is panic. In a few weeks, the markets lose -25%. As a result, the central bankers decided to backtrack. But today, we can no longer do, observes Nicolas Chron. Because in the face of galloping inflation, central banks have no choice but to raise their rate. And this, even if the markets fall.
So should we sell everything before it’s too late? Not necessarily. But for the moment, caution is in order, replies Nicolas Chron. Because the worst may still come. For one low point is put on a market, this market must capitulate. And for that, you need fear, a sharp drop in prices, and historic volumes. For the moment, we do not yet have these three ingredients, continues the expert. Result? We don’t know if we are living a legitimate fix to then start again better, or if we are at the beginning of a bear market which could last 12, 18 or even 24 months.
Stock market: how to avoid the traps of the year 2022
Towards a fourth crisis?
To limit damage, panic movements must be avoided. Admittedly, the drop in the CAC40 over the last five days may seem spectacular (-7.68%). But crises are nothing new. Since the turn of the century, the financial markets have gone through at least three: the internet bubble (2000), the subprime crisis (2008), and the Covid-19 crash (2020). And above all, bearish episodes only last for a while. On March 16, 2020, the CAC40, for example, closes the session 3881 dots. The dive is dizzying: -39% in a month. But 1 year later, on March 17, 2021, the index rose above the bar of 6000 dots.
In short: the markets have already proven on several occasions that they were capable of recovering. But no question of remain inactive however. Beware of the myth of Not sold, not lost, warns Nicolas Chron. This is one of the sayings that has caused individuals to lose the most money over the past twenty years. do it round back is not enough: the investors who played this card in 2000 on the Alcatel and France Telecom files have never recovered their bet.
To best navigate the crisis, arbitrations must be done. Avoid too speculative files, or companies whose valuation multiples reach stratospheric levels, like some Tech values. They will be the first to dive if the macroeconomic situation deteriorates in the coming weeks, recommends Nicolas Chron. In contrast, strong positions can be maintained on the long term. Preferably keep in your portfolio the leading companies in their field, which have a large market capitalization and generate profits without being too leveraged.
Online stock exchange: which bank or broker to choose?