US markets are beginning to fear that they are not even halfway through the bad news the year 2022 has in store, media reports said.
The first six months were full of surprises: Inflation, the biggest selloff in bonds in four decades, a plunge in tech stocks rarely matched in history, and the implosion of crypto, the Wall Street Journal reported.
The looming risk that investors ignored for months is recession. But whether the economy will slump or be just fine remains unknown. Attempts to put a probability on it range from 90 per cent in a Deutsche Bank survey of clients to the spurious precision of 4.11 per cent in the New York Federal Reserve’s recession forecasting model.
While investors are at last focused on recession uncertainty, risks elsewhere in the world could hit the US investors too.
Japan might finally be forced to relent and allow bond yields to rise, which would suck back cash the country’s investors had poured overseas.
“In Europe, the central bank has promised a new plan to support Italy — but we’ve seen this show before. If it follows the pattern of too little, too late, we could see a return of the eurozone debt crisis, something the markets are not prepared for,” Wall Street Journal reported.
Almost any economic outcome is likely to prove a fresh surprise. If there’s a soft landing, stocks should do well as the recent recession panic reverses.
If there’s a recession, there could easily be a big loss still to come, since only the drop of recent weeks appears to be related to the recession risk, the report said.