Amid a sea of red in U.S. stock markets, a fundamental shift in investors’ thinking is taking place, one which analysts describe as a “growth scare.”
Amid a sea of red in U.S. stock markets on Friday, a fundamental shift in investors’ thinking is taking place, one which analysts describe as a “growth scare.”A “growth scare” is characterized by a correction in anticipation of slowing economic growth, even if such a slowdown hasn’t yet been borne out by the data.
Prior rounds of U.S. stock selloffs this year were largely driven by prospects of rising interest rates from the Federal Reserve, which is attempting to stomp out the highest inflation in four decades. While the risks of a recession or economic slowdown lingered in the backdrop, they hadn’t been brought to the fore. Many in financial markets have remained confident the U.S. can avoid a downturn, or speak of recession risks in terms of the next one to two years.
“For a good portion of this year, we saw a positive correlation between equities and bonds: that is, a selloff in equities and selloff on bonds,” said Subadra Rajappa, head of U.S. rates strategy at Société Générale. “Now, we’re seeing a rally in bonds correspond to a selloff in equities. The subtle shift is that bonds are starting to act as safe haven, suggesting a growth scare and the potential for demand destruction that leads to lower growth.
Read: S&P 500 earnings are another potential `shock’ awaiting financial markets trying to shake off stagflation fears: economist
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