US Equity Markets Decline In 6 Week Sell-Off Amidst Global Uncertainty

Industry News

& Articles

US Equity Markets Decline In 6 Week Sell-Off Amidst Global Uncertainty

  • S&P500 in US off 16 percent in 2022
  • Rising inflation, higher interest rates, supply chain bottlenecks, war on Ukraine are creating widespread market uncertainty
  • Tight labour market is a complicating factor for Central Bank interest rate policy settings
  • Uncertainty has reduced market liquidity, exacerbating market decline and price volatility
  • Markets are in ‘adjustment phase’, while China COVID lockdowns and war on Ukraine persists
  • A focus on company earnings prospects and not the market, appears the right choice for now

Global uncertainty weighing down on equity markets

Global equity markets have continued their six week decline with US equity markets falling steeply again on Monday. The S&P 500 fell 3.2 percent while the Dow Jones Industrial Average fell 2 percent and the NASDAQ was down 4.3 percent. European and Asian share market indices declined too. The decline extended to the Australian market this morning with the ASX200 lower by 2 percent.

A confluence of events has caused nervousness and uncertainty in global equity markets, including rapidly rising inflation, leading to a sharp increase in interest rates, and exacerbated by stringent COVID lockdowns in China. paralysing the supply chain of essential components of manufactured goods around the globe. Supply chain bottlenecks are creating shortages that are in turn pushing up the price of goods. The war on Ukraine, with no end in sight, has added to the uncertainty, pushing energy and food costs higher, putting household budgets under pressure, as well as adding to the inflation rate. Inflation in the US, as measured by the cost of living, is running at 8.5 percent in March, after a 7.9 percent lift in February. The annual Eurozone inflation rate hit a record high of 7.5% in March, compared to 5.9% in February. Australia’s most recent inflation data is showing a headline inflation rate of 5.1 percent and an underlying inflation rate of 3.7 percent. This is well outside the RBA’s stated inflation target range of 2-3 percent and the largest annual increase in inflation for more than 20 years.

The only positive economic news is that unemployment is at a 40-year low. However, full employment is generally consistent with higher wages, which are a significant input cost of manufactured goods, leading to higher inflation. These inflationary pressures require a response from Central Banks around the world in the form of higher interest rates. This goes to the heart of the problem; being the combined impact of rising interest rates to fight inflation, which runs the risk of slowing a fragile global economy, while dealing with a global pandemic that threatens the orderly supply of goods around the world. Rising inflation driven by supply chain shortages and elevated energy and commodity prices, together with rising interest rates, leading to a slowing economy, are the seeds of stagflation. While it is early in this chain of events to point to stagflation, it is on the mind of investors and accordingly is a key factor affecting investor confidence in equity and bond markets around the world.

Is a rebound likely?

Trying to anticipate upswings and downturns is not an investment strategy; it is a trading strategy, while perfect timing is a hindsight phenomenon.

On the other hand, discerning investors know that corporate earnings drive share valuations and interest rates drive price earnings ratios. Understanding these fundamental investment principles takes the emotion out of investment decisions and enables investors to focus on and profit from market opportunities over the long term. The decline in global equity prices over the past six weeks is the necessary adjustment process occurring in the market, following an extended period of elevated equity and other asset prices, driven by low interest rates. The adjustment process is made necessarily more pronounced when interest rates are at an all-time low.

This explains the current market volatility as investors work through this adjustment process.

Markets are likely to remain volatile while China COVID lockdowns persist and the war in Ukraine continues. Both events have contributed to the current bout of inflation and the issue for investors is whether their inflationary impact is transitory or entrenched.

The other key issue is the extent to which Central Banks round the world will increase interest rates. This is partly dependent on the resolution of current events in China and Ukraine. The complicating factor is the low level of unemployment, and the prospect of wage rises adding fuel to inflation. These factors have led to investors sitting on the sideline waiting for them to play out, leading to reduced market liquidity, which itself adds to further market volatility.

Looking over the economic horizon beyond these events, is the broader economy and the outlook for corporate earnings. The economy is well supported by strong employment growth arising from the extraordinary tight labour market.

To the extent that economic growth, as measured by Gross Domestic Product (GDP), is steadily maintained over the medium term, the outlook for equity markets is mildly positive, after a remarkably long period of sustained economic growth. This is based on the belief that corporate earnings, driven by the level of GDP, is the underlying driver of equity markets. GDP has grown throughout history so economic growth isn’t about luck, it’s how the world works.

A deliberate focus on individual companies comprising investors’ portfolios and their earnings outlook, rather than worrying about the market per se, is a wise choice in the current circumstances.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at

Comment on this company

Latest Stories

Aristocrat Delivers Strong Top And Bottom-Line Growth Sending Shares 6% Higher

Aristocrat reported a half-year Net Profit After Tax before Amortisation……

BlueScope Steel Upgrades 2H22 Earnings Guidance On Higher Steel Prices

Better than expected steel prices and spreads for BlueScope’s painted……

James Hardie Delivers Strong Fourth Quarter With A 36% Rise In Profits

Global net sales of US$3,614 million were up 24 percent, boosting……

More for you

AUB Announces Share Retail Entitlement Offer At $19.50 Per New Share

Shareholders have until 27 May to apply for New Shares under……

CBA Posts Steady March Quarter With A $2.3B Profit

A 25 percent increase in grain handling and elevated grain prices……

GrainCorp Records $246M Half-Year Profit In Favourable Wheat Market

A 25 percent increase in grain handling and elevated grain prices……

AUB Enters UK Market With A$880M Lloyds Insurance Broker Acquisition

AUB has today announced the acquisition of Tysers, a leading Lloyds……

US Federal Reserve Raises Interest Rates By 50bp to 0.75-1.00% Target

In a widely anticipated move, the US Federal Reserve Board increased……

Temple & Webster Launch Online Home Improvement Website

Temple & Webster have today launched a new online store……

KOSEC Terms & Conditions

Kodari Securities Pty Ltd (CAR 399556) trading as KOSEC is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC is a financial services company and any information provided by its platforms, portals, reports and documents is protected by copyright. Any unauthorised production of this information is prohibited.
KOSEC reserves the right to change or remove any information provided on our website, reports or any documents including these terms and conditions at any time without notice. The change or modification to the terms and conditions will be effective immediately upon posting an updated version on our website, necessary platforms and documents. It is recommended that you review the information provided on our website, including these terms and conditions frequently for any changes.

KOSEC provides general advice only. The information provided is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. KOSEC recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Please make sure you read our Financial Services Guide (FSG).

KOSEC does not guarantee any returns. Past performance of any product discussed is not indicative of future performance. (We urge that caution should be exercised in assessing past performance. All financial products are subject to market forces and unpredictable events that may adversely affect their future performance). Investing in the stock market can incur huge losses. Please also be aware that fees will incur on every transaction regardless of the performance of your investments or returns generated. Employees and or associates of KOSEC may hold one or more of the stocks, securities or investments reviewed by the company.

Your use of information from our website, reports, documents and from talking to our representatives/associates is at your risk. Under no circumstance should the investment be based solely on KOSEC information and general advice. You should seek professional financial planning advice.
KOSEC aims to maintain the accuracy of the data and information provided on this website, by using information prepared from a wide variety of sources, which KOSEC to the best of its knowledge and belief, considers accurate and does not make any representations or warranties of any kind, expressed or implied, about the completeness, accuracy, reliability, suitability or availability of the information provided.

We may at times refer to third parties, which the details of these third parties have been provided solely for you to obtain further information about other relevant products and entities in the market. KOSEC has no control over the information third parties have, or the products or services offered, and therefore make no representations regarding the accuracy or suitability of such information, products or services. You are advised to make your own enquiries in relation to third parties. Our inclusion of any third party content is not an endorsement of that content or the third party.

As a client you will be charged a yearly service fee and a set brokerage fee per transaction. Your service fee will automatically renew at the end of your agreed 12 month period at the same rate advertised at the time. Your credit card or bank account will be charged for a further year following which will again auto renew until you cancel your yearly service fee. You can cancel the auto renewal at any time in advance of the renewal date by contacting us. KOSEC is aware of the need to ensure the security of your credit card details and our payment systems are compliant with the Payment Card Industry (PCI) Data Security Standard.

You consent to receiving email correspondence from KOSEC, as well as companies KOSEC has an association with. These emails will be sent by KOSEC and third party companies. You can opt out of receiving any category of emails at any time by contacting us. We may from time to time inform you of special offers, or even ask your opinion of the services we provide, but your involvement is optional. Should you request us to do so, we will archive your details.

Indemnity and Liability
You indemnify KOSEC from all claims or threatened claims, suits, demands, damages, costs as well as including legal costs incurred in dealing with any threatened claim, expenses made by any person or corporation against KOSEC and any other amounts which is caused by KOSEC providing information, execution and General Advice.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from a decision made by you on the basis of information obtained through the use of our portal, reports, documents or any General Advice given and any transaction taken place.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from delays in executing orders for the client and acknowledges KOSEC makes no guarantees about the time taken to execute an order on behalf of the client. You acknowledge that KOSEC relies on third parties in providing technology and release KOSEC from any harm, loss or damage you may suffer as a result of the failure of such information technology.

Cookies and Links
KOSEC website, and its portal uses cookies, which lets us identify your browser while you are using the site or our portal. Cookies do not identify you personally. They simply allow us to track your usage patterns. If you prefer not to receive cookies, you can configure your browser to reject them or to notify you when they are being used. The functionality of the KOSEC website may be impacted if you restrict the use of cookies.

Fill up the form below and we will get back to you as soon as possible.



KOSEC’s CEO, Michael Kodari’s new book, “Stock Market Success” valued at $39.95, available at Dymocks book stores with all the proceeds going to Dymocks Children’s Charities.