It could be risky to participate in the ongoing rally in the markets, after the MSCI World index rose nearly 13 percent this year, according to fund managers. Managers state that the current situation sows the seeds of future vulnerabilities and the lagging effect of policies could result in a recession.
Andrew McCaffery, global CIO of Fidelity International, stated that the current situation sows the seeds of future economic vulnerabilities and drew attention to the delayed effects of policies that may result in a recession.
Joseph Little, Global Chief Strategist of HSBC Asset Management, pointed out that a bad surprise is expected in the stock markets in the second half of the year. Weak economic fundamentals could come as a nasty surprise despite expectations for a soft landing, Little said.
Luke Newman, Fund Manager of Janus Henderson Investors, stated that the last good quarter has been experienced in many sectors and companies can reflect their cost increases to consumers in a more limited way.
Rate Increases Trigger Global Recession Worries
The rapidly increasing global inflation accompanied by the Russia-Ukraine crisis, which emerged just after the monetary abundance experienced during the Covid-19 period and the effects of the virus began to decrease, caused the interest rates to increase rapidly by the major countries.
The USA, which affected all countries, from the largest to the smallest, due to its power in global trade and its ownership of the dollar, increased the interest rates in this period, accompanied by Powell, the President of the Federal Reserve Bank of America, and entered the path of monetary tightening. Silicon Valley Bank, which could not take a very good position in the face of increasing interest rates in this period and already had some problems in its foundations, went bankrupt and revealed the bitter face of interest rate hikes.
Although Powell’s calls for “more” interest rate hikes from time to time to frighten the markets, and the constant hawkish speeches of names like James Bullard, created fears of recession in the markets, the S&P 500 index started a rally at the beginning of 2023, ignoring all these recession concerns.
The market, which thought that the Fed would not tighten further after the bankruptcy of Silicon Valley Bank, would have believed that the interest rate hikes were left behind and that a decrease in interest rates should be started to be talked about.
After all this uptrend and optimism, global fund managers and analysts of the world’s leading investment banks are now pointing to Powell, who left two more interest rate hikes on the table in the past weeks by giving the message “Don’t fight the Fed”…
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