Anyway, it is a neat idea – helping people make sense of the mysterious world of finance.
So ... how do you make sense of the present markets?
There's a war raging in Europe, pushing up prices on both energy and food. Major Chinese hubs are partly under lockdown for fear of COVID-19, exacerbating supply chain problems. Inflation rates are rising globally, pushing central bankers to raise interest rates. Growth estimates are being cut and recession warnings are flourishing. The arguably most important US stock index (the S&P 500) fell by almost 9 per cent in April. There is no shortage of major market scares.
Do note, though, that Nordic stock markets, as a pleasant exception, stood their ground pretty well this month. And let's widen our perspective beyond April: The MSCI World Index is less than 12 per cent below its all-time high. For the Norwegian benchmark index, the difference is a mere 3.5 per cent. Investors, who generally buy stocks and not stock markets, seem to be somewhat less apprehensive. At least stock investors; bond investors have taken a pummelling this year.
Whatever happens, someone will be lauded for getting it right. For every possible outcome, there is a plethora of prophets. We thus need to recognise that a lot rests on things we cannot possibly know. We can only make some conditional inferences.
The war, for instance. It may be over soon, or it may drag on. We honestly don't know. But we know that if it drags on, it will prop up commodity prices and, indirectly, consumer prices.
A similar argument goes for supply-chain problems. Sooner or later they are going to be satisfactorily resolved, but when? That's anybody's guess. We do know, however, that prolonged problems are likely to make inflation stickier and increase the pain for companies lacking vital parts and inputs.
Interest rates are a bit less foggy. We don't know their future trajectories, but we have several clues: forward rates, central bank statements, current inflation etc. And we do know that if they keep rising, it will be disproportionately tough on investors in long-duration fixed-coupon bonds (as it has been for some time now).
We can also infer, if not know with absolute certainty, that rising rates will have more of an impact on growth stocks, which are generally more interest rate sensitive. This, too, has been the case for some months now.
What about earnings? Again, we are not without clues, but it is obvious that interpretations differ. We know a lot, however, about their relation to stock prices. So, here's another conditional inference: Unless earnings fail spectacularly, I really can't see stocks crashing.
And the broader market? We don't know where stocks are heading and we don't know what investors are thinking. But we surely know what they are doing. The stock market is the world's largest voting machine, with stock prices reflecting millions of votes cast every single trading day. Somewhat higher volatility indicates higher uncertainty, which should come as no surprise.
Given the proximity to all-time highs in a number of markets, however, it seems clear that if investors around the world fear a major market decline, they are certainly not putting their money on it.
Finn Øystein Bergh
Chief Economist & Strategist
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