Thursday was a dark day for investors: the largest Swiss index on SMI lost 2.51 percent. Even the German DAX fell 3.28 percent. In the USA, there were sharp decreases in the most important indices yesterday. The Dow Jones fell 2.25 percent and the US technology group index Nasdaq fell 3.37 percent. Equity markets are actually pricing future developments, but they took a wrong turn yesterday due to sharp rate hikes by major central banks. This Friday the characters are dark red. As the Japanese stock market closed in the red, the leading Swiss index started with losses.
Blick gives stock market divers the most important answers.
Why did the markets react so harshly to interest rate hikes?
Investors expect banks to slow their rate hikes due to falling inflation in the US or EU. It was yesterday though. For example, the US Federal Reserve raised interest rates by “only” 0.5 percentage points, after raising 0.75 points four times before. The European Central Bank (ECB) and the Swiss National Bank (SNB) also slowed rate hikes yesterday. However, some analysts had predicted, for example, that the SNB would only raise interest rates by 0.25 percentage points instead of 0.5.
Is interest rate hikes solely responsible for the stock market decline?
no What further worried the markets were the statements of the ECB, Fed and SNB that they would continue to take firm steps in the fight against inflation. All central banks have already announced drastic interest rate hikes. On the other hand, investors had hoped that everything would be clear on the inflation front and that no further rate hikes were planned.
Why don’t central banks explain everything in the fight against inflation?
Inflation is falling almost everywhere. In the US, for example, it fell from 7.7 percent to 7.1 percent in November. It also fell from 10.6 percent to 10 percent in the EU, and in Switzerland it’s still at a relatively mild 3 percent in November. However, in a long-term comparison, inflation rates are still extremely high and well above central banks’ target rates.
Has the trend reversal in inflation rates really happened yet?
According to central banks, this target has not yet been reached. Uncertainties in the market will be huge. On the one hand, the further escalation of the Ukrainian war in the spring could once again pose problems for the global economy. The war and the fight against the epidemic in China hangs like the sword of Damocles in international supply chains. In addition, energy prices continue to be a powder keg especially for Europe. European countries will have to meet their energy needs next year without buying oil and gas from Russia. The struggle for fossil fuels from other countries of origin could raise prices again and increase inflation once again.
Which stocks are among the biggest losers?
Many industrial titles in Switzerland suffered significant price drops: hearing aid manufacturer Sonova lost 5.4 percent, and semiconductor manufacturer AMS Osram even lost 7.3 percent. Shares of chemistry and pharmaceuticals group Lonza also fell 3.5 percent, but this is attributed, among other things, to media reports of a cost explosion in the rehabilitation of the toxic waste dump at Gamsenried VS. Companies from the construction sector such as Sika (-4 percent) and Holcim (-3,6 percent) also suffered significant losses. Thursday in the US was a pitch dark day, especially for tech companies. Meta fell 4.5 percent, while the Netflix streaming service fell 8.6 percent.