Traders work on the floor at the New York Stock Exchange in New York
Media reports said US markets are beginning to fear that they are not even half of the bad news coming in 2022.
The Wall Street Journal reported that the first six months were full of surprises: inflation, the biggest selloff in bonds in four decades, declines in tech stocks rarely matched in history, and the impact of crypto.
The risk that investors ignored for months is a recession. But whether the economy will decline or recover is unknown. Attempts at this range from 90 percent in a survey of Deutsche Bank customers to a spurious accuracy of 4.11 percent in the New York Federal Reserve’s recession forecasting model.
While investors are finally focused on the uncertainty of the recession, risks elsewhere in the world could stymie US investors as well.
Japan may eventually be forced to do so and allow bond yields to rise, which will draw back cash pumped abroad by the country’s investors.
“In Europe, the central bank has promised a new plan to support Italy – but we have seen this show before. If it follows the pattern of too little, too late, we could expect a return of the eurozone debt crisis. You can see, some markets are not ready for this,” the Wall Street Journal reported.
Almost any economic outcome is likely to prove to be a new surprise. If there is a soft landing, the stocks should do well as the recent bearish panic has reversed.
If a recession does occur, there could easily still be a major loss, as recent weeks of declines appear to be related to bearish risk, the report said.