Week in a Glance: Stock Market Nightmares, Inflation

24 gen 2022

The past week can be safely called waking nightmares for buyers of risky assets. On Friday alone, the cryptocurrency market lost over 10% (and, by the way, there is no queue of buyers, and after all, Bitcoin is already 50% cheaper than it was just 2-3 months ago), and the US stock market, represented by the Nasdaq index, showed the worst week since spring 2020 and overall it was the worst January for the index since 2008.

Since the spring of 2020 is the beginning of a pandemic, the start of lockdowns and complete uncertainty, and 2008 is a global financial crisis that almost buried the entire global financial system under it, it becomes obvious how bad things are now. Especially when you consider that nothing actually happened.

You can't call the reporting season a failure. Even Netflix, which was kicked by everyone at the end of the week (shares down more than 20% - the worst result since 2012) actually showed more than decent financial results, exceeding earnings forecasts and did not disappoint on revenues.

However, nothing surprising happens to us. We have been writing systematically for a long time that huge price bubbles have swelled in the markets for risky assets. And bubbles are not about the rational, they are about the irrational. So in this light, selling out of the blue is a classic example of the irrational. At the same time, the fundamental basis for sales was created a long time ago and is just now being worked out.

We are talking about a total overvaluation of assets against the backdrop of an unwinding inflationary spiral. The mixture is extremely explosive, since the tightening of monetary policies by the leading central banks creates the prerequisites for a mass exodus from risky assets. By the way, this week on Wednesday we are waiting for the announcement of the results of the meeting of the FRS Open Market Committee. It is possible that it was precisely for this event that the markets were desperately trying to discount last week.

Should the US stock market be buried? Definitely not. Can it still go down? Definitely yes. Will he do it this week? Unknown. Very often, markets tend to overreact, resulting in a correction.