Economists are wondering if the chain reaction threatens the new crisis, and the largest US investment bank, Goldman Sachs, said that the impact of the fall of Wall Street will be felt by the US economy early next year and they will be quite substantial. And JP Morgan experts are sure: the real nightmare in the stock market has not yet begun.
Causes of the collapse
Last Thursday, the Dow Jones lost 2.41%, the S & P 500 - 3.09%, offsetting almost all of its growth since the beginning of the year. The biggest losses were suffered by Nasdaq, which includes shares of the largest American technology companies. It fell by 4.5% - a record collapse since August 2011.
The reason for the fall in the indices is a decrease in the volume of real estate purchases due to rising mortgage rates (and this, in turn, is a result of the growth in long-term bond yields against the backdrop of the Fed’s tightening monetary policy, which raised the key rate three times this year) and a slowdown in the Chinese economy.
Inflation risks
According to analysts, the Federal Reserve is the main culprit of the sale. "It looks like the Fed intends to continue raising rates, despite the increasingly clear signs of weakening global growth," said Alec Young, managing director of global markets research at FTSE Russell.
The likelihood of higher interest rates increases inflation. According to scientists at Yale University, in the US inflationary cycle, a period of growth is beginning now, including due to sharpening trade contradictions. And this means that the Fed will have to raise the rate.
According to Stephen Roach, a senior university researcher and former head of Morgan Stanley Asia, next year inflation in the United States will increase to 3-3.5%.
Economic slowdown
Analysts of the American investment bank JP Morgan Chase believe that the real collapse in the US stock market is still ahead and one of the causes of future problems is the abundance of index, stock exchange and other passively managed funds.
If during the global financial crisis of 2008, passive assets accounted for about 30% of the volume of actively managed assets, now this figure has reached 83%, state bank strategies.
Analysts at another major investment bank, Goldman Sachs, calculated the impact of a series of stock market crashes on the US economy. They point to the fact that Wall Street from a driving force risks turning into a burden.
The bank also believes that the Fed will raise the rate five more times by the end of 2019, which is twice as much as the market expects.
According to the calculations of Goldman Sachs, if the sale continues and stock prices in the fourth quarter will fall by another 10%, the negative impact on the economy by the second quarter of 2019 will be about 0.75% of GDP.
Is the crisis just around the corner?
Is there a risk that the projected collapses in the US stock market will cause a chain reaction and a new global crisis? Asian markets are already falling, and analysts point out that such a scenario cannot be ruled out.
As calculated in JP Morgan Chase, a collapse should be expected in 2020. Bank analysts are reminded that during the global crisis of 2007–2008, the S & P 500 stock index fell by 54% from peak values.
The impending collapse of the stock market is not expected to be so large-scale, since the value of assets in developing countries is now much lower than in 2008.
The decline in market liquidity, along with the growth of passive investments, weakens the market’s ability to prevent large drawdowns in the event of an increase in volatility, the report of the financial holding company notes.
The probability of a crisis in the second half of 2019 is estimated as quite low. In many ways, its dynamics will be determined by the rate of increase in interest rates of the US Federal Reserve.
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