This week, the markets are undoubtedly on edge, with investors expecting a particularly volatile period to come. After an eventful few weeks of market action, the odds seem to favor further selling this week, perhaps even more than in past weeks.
People knew things weren’t going to remain stable for long, but the resilience of the market over the past months had left many expecting something less disruptive. With the current circumstances, investors can no longer keep their hopes up but instead look to other indicators to gauge the direction of the market.
The most notable cause of the anticipated market declines can be found in fluctuating economic data; simply put, the outlook for the economy is bleaker than it was only weeks ago.
With economic concerns rising, the tech sector – which has been a primary driver of the stock market’s gains since the pandemic began – has started to falter. Despite more companies than ever reporting earnings, the weak economic data from around the world has put a damper on investor sentiment, making it more difficult for tech companies to generate much enthusiasm.
What follows typically in such a situation is a cascade of selling pressure, as investors decide to sell off overvalued assets as well as perceived ‘safe’ investments such as treasury bonds. This leaves prices to fluctuate in the short-term as the market accommodates a new balance without any significant underlying support.
As the economic indicators remain downbeat, more investors may decide to reduce their investments, recognizing that these issues will likely remain for some time. It’s yet to be seen how far the market may fall, but it’s likely to be a more volatile period than we’ve seen in the past few months.
The current recessionary forces have been hard to ignore, so this week it appears that the odds are in favor of investors opting to take their money out of the markets and play defense for the foreseeable future. While economists may be expecting a rebound in the near future, there’s no guarantee that markets will replicate the strength it had during the spring recovery.