The ECB has just raised interest rates from zero to 0.5 percent. This is what the markets rule.
(Photo: dpa)
Just under a year ago it was already clear: the central banks would end their long-standing support for the economy and thus also for the markets. It was also foreseeable that the decades-long trend towards ever lower yields would thus come to an end. At best, there was disagreement as to how far the central banks generated this trend or just followed it.
So the markets knew what to expect. Nevertheless, when the central banks actually had to take action – also driven by higher inflation than many expected – the prices reacted again clearly.
Now we may be in a similar situation. We know that there is a high probability that a recession is inevitable.
In the USA, because inflation there has already spread so much that it can no longer be contained without a significant slowdown in the economy. In Europe, because the war over energy prices will always slow down the economy, but at the same time it is driving inflation, so the European Central Bank (ECB) cannot help.
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Nobody knows how bad it will get
Even now, the markets are beginning to see roughly what is threatening them. But they don’t know how bad it will get. It is therefore reasonable to assume that if the recession actually makes itself felt, prices will come under pressure again.
But in the recession, investors will look ahead again. And the smartest of them will start buying again when the mood is down.
For investors, that means either shutting your eyes and waiting until the markets anticipate the post-recession recovery. Or to act tactically and continue to reduce risk positions for the time being and build them up again in good time.
But if this kind of tactic doesn’t work, and it happens very often, nothing would be gained – and the trouble probably even greater.
More: These signals point to a recession