International Stock Markets in Chaos: What's Next? Let's Take a Look
Current Status of Stock Market Investments
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The global stock market phenomenon isn't slowing down, not even by a mile. The German stock market barometer Dax is a recent casualty in the first week of this tumultuous run. Is the path ahead filled with more troubles, or could a turnaround happen soon? Let's analyze the situation:
The Source of the Storm
The U.S. government's relentless commitment to extreme economic policies has raised the stakes. High tariffs are imposed on imports from around the world, and even the hint of discussions with affected countries by President Donald Trump doesn't alter this fact.
If this persists, and major trading partners like the EU and China respond with retaliatory tariffs, experts predict a slowdown in the global economy [1]. It seems the optimists among investors have abandoned all hopes of improvement and are selling their stocks in a frenzy. Financial markets expert Andreas Lipkow notes, "The selling pressure has escalated significantly at the start of the week. Nerves are on edge right now" [1].
What's the Advice for Individual Investors?
As unforeseeable as Trump's trade policy is, so unpredictable are the prospects for stock investors. In the short term, they should brace themselves for more losses. Since Trump's tariff announcements, the market has been on a downward spiral [1].
"The atmosphere on Wall Street is as grim as it has been for a while," commented capital market strategist Jürgen Molnar from broker RoboMarkets. "No one wants to touch the falling knife and risk being caught by the next counter-tariff measure from Europe" [1].
Many portfolios have either accrued losses or seen profits diminish in a short time. As long as nothing is sold, these are only paper losses. In a few months or years, it could look different again. Therefore, many experts recommend an old stock market rule – don't sell out of panic, ride through the crisis, and wait for better times.
The Fight Between Blocs
If trading blocs continue to isolate themselves with tariffs, there's a risk of a global recession lasting longer. However, if the trade conflict is resolved, relief could quickly translate into a surge in stock markets. Much hinges on whether the U.S. President Trump persists with his course or chooses to backtrack [2].
Historical Perspectives
Sharp drops in stock markets aren't unusual. In 2000, for example, the dot-com bubble burst. Numerous internet sector startups without a sustainable business model went bankrupt. This was followed by a prolonged bull run in the stock markets from spring 2003.
This bull run was halted by the collapse of US investment bank Lehman Brothers in 2008. Prices fell again, but the stock market recovered [2]. The COVID-19 pandemic led to the most recent dip. The subsequent recovery followed. Whether the same pattern will be repeated isn't certain [2]. Because Trump's trade policy may cause lasting damage to the foundations of cross-border trade.
The Most Affected Sectors
U.S. tech stocks initially bore the brunt of the sell-off, having led the winning lists for quite some time. However, virtually no sector has managed to escape the downward spiral by now. These tariffs affect all exporters. Some corporate stocks, which have production facilities worldwide and can thus avoid tariffs to some extent, have held up relatively well in the recent weeks [1].
Implications for Real Economy
The new U.S. tariffs and the impending counter tariffs themselves already represent a significant trade barrier. Persistent losses in stock portfolios could exacerbate the negative impact on the economy. Consumers may tighten their purse strings, and companies may hold back on investments given such uncertain prospects [1].
References:
[1] ntv.de, chl/dpa
[2] PBS.org
[3] CNN Business
[4] Financial Times
- Despite the hope for a reversal in the global economy due to the U.S. trade policies, the ongoing high tariffs might provoke employment policy changes within various community policies to address the economic slowdown.
- As the selling frenzy continues in the stock markets, individuals are advised to adhere to the old stock market rule, waiting out the crisis instead of succumbing to panic selling, particularly due to the impact of tariffs on employment within the tech sector.
- In the event of a trade conflict resolution, both employment policy and community policy may witness a significant resurgence, as relief could lead to a surge in the stock markets, recovering losses and potentially instigating economic growth.
