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Stock market week: Stock markets in the correction phase

Stock market week: Stock markets in the correction phase
Written by insideindyhomes

BIf you look back on the past two weeks on the stock exchange, the conclusion in the Dax is more than sobering: a minus of 9 percent or more than 1200 points. In the past five trading days, the leading German index has fallen by more than 4 percent. The news from Friday also shows that the market is in a correction phase: Star investor Ray Dalio’s Bridgewater hedge fund has bet at least 6.7 billion dollars on falling stock prices in Europe. This clearly smells like a bear market, i.e. further price losses.

Accompanying the sell-off in stock markets around the world is a sharp rise in bond yields, which is also the result of a sell-off. Since the beginning of June, the yield on ten-year federal bonds has risen from a good 1.0 percent to 1.9 percent. Thanks to the calming pill from the European Central Bank (ECB), which after an emergency meeting on Wednesday announced the flexible reinvestment of maturing bonds from its purchase programs that expired at the end of June, the bond markets have recovered somewhat.

The yield on the ten-year Bund was 1.65 percent on Friday. The yield on Italy’s ten-year government bonds fell even more sharply, from a good 4 to 3.6 percent. Nonetheless, investors are now turning their attention to bonds after avoiding this asset class in recent years due to negative interest rates.

With a price of 85 percent, the ten-year federal bond is now worth considering again as a safe security for many investors. Because when it is due, you get 100 percent back. In view of the long term, however, this calculation harbors many uncertainties. The fact that private investors are increasingly looking at bonds again shows the extent to which doubts on the stock markets have increased. High inflation and increasingly aggressive interest rate hikes by the central banks in the United States, Great Britain and even Switzerland, together with concerns about the energy supply, are fueling expectations of a recession.

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