The stock market is continuously going downhill for some time now, In the last one month, the NIFTY 50 stocks were down by 3.6% and it is down by almost 13% since the beginning of the year. In this article, I will try to explain the probable reasons for the fall witnessed in the market.
1. High Inflation Environment
One of the biggest reasons behind the sharp decline in the market in the last week is the high inflation numbers seen in the United States. The CPI inflation in the US is at a 40-year high of 8.6% in May 2022. This has led to a belief that the US Fed might again increase the interest rates aggressively. And if you have any idea about the market, you must know that every time there is a rate hike, the markets have responded in a negative way. This speculation of the US increasing the interest rates is visible in all the stock markets across the globe including India.
2. People Moving Over To The Debt Market
As investors are sensing that the stock market may fall further in the future when there a rate hike is announced, they are rebalancing their portfolios. Due to this, capital is being flown from equities to debt. As a result of this outflow in capital from the stock market, all major stocks are experiencing a decline.
3. Russia - Ukraine War
Russia - Ukraine war is having some serious ramifications. The effects of the war are contagious. Ukraine and Russia together contribute around 30% of the global wheat production. Due to the crisis, wheat is not being able to be exported from these 2 countries. In addition to that, India has also announced a ban on wheat exports. All this has caused an increase in demand and a decrease in supply resulting in a significant increase in wheat prices.
Events in Ukraine are a key factor behind the increase in the price of gasoline. Russia is one of the largest producers of oil. The war has caused disruptions in the global oil supply. All these are influencing a decline in the stock market.
Stanley Druckenmiller had predicted last year that the inflation rates can touch historical highs. Speaking about the current times, he said that there is a lot of skepticism about the geopolitical events and we might just be entering a bull market and the market can see similar bad times for around a year.
He even added that if we analyze the historical data, every time the inflation has touched figures higher than 5%, there is always a period of economic decline for at least a year. As per him, the market can fall more and as an investor, we can expect some bad times ahead.
And finally, this brings us to the end of this small update on the market conditions. I hope this imparted some value in your life. Consider giving a like and share it among your peers. To get notified of new articles, sign up to the NerdyTree.