Why are the stock markets so stable right now?

Booge

I’m looking at the Dow Jones, FTSE, S&P 500 index etc and wondering why are they staying so stable in the context of the growing awareness of a big recession coming down the line? 

Especially the FTSE which is more affected by European inflation/ gas price issues? 

Why is there not a crash? 

Any ideas?

jonathab 

Swipe

https://www.youtube.com/watch?v=RDudZZiPPIQ

p00hsticks

Booge said:

I’m looking at the Dow Jones, FTSE, S&P 500 index etc and wondering why are they staying so stable in the context of the growing awareness of a big recession coming down the line? 

Especially the FTSE which is more affected by European inflation/ gas price issues? 

Why is there not a crash? 

I'm not sure about a 'growing awareness' - it;s been on the cards for sometime so I would imagine is already built in.

It's surprises that make the market react....

Linton

Perhaps because people have been talking about a recession for many months and those who wanted to sell have already done so causing the markets to fall in the first half of the year.  

To use the usual terminology, a recession is already priced in.

Booge

True, we have been talking about a recession for some months. But we are now talking about a recession bigger than in 2008 and inflation that is the worst since the 1970s. The scale of the predictions are increasing. Yet to look at these indexes you would think everything is fine in the world. 

Booge

The U.K. monetary policy committee this week set interest rates on an assumption of a recession lasting 7 quarters and a 7.1% reduction in GDP. If this materialises that’s a huge recession with significant job losses and real wages also reducing fast limiting consumer spending. I can’t see how this is already priced into the FTSE. 

Apodemus

Booge,  I'm no expert on this, but I would have thought that a major feature of the 2008 market crash was that it began with big existential risks to some of the main financial players themselves, rather than arising from the wider economy.  In some respects the market affected the economy rather than the economy affecting the market, as might be the case today.

The Dow Jones dropped about 19% from peak in January this year to trough in June, bringing it back to around the level it reached at its Feb 2020 peak.  Depending on your definition, that is just marginally short of a bear market.  After a significant drop, there will always be people who think the worst is past and others who will think the worst is still to come.

masonic

Markets move on unexpected news and price in expectations of the future. Nothing disclosed recently came as a surprise.

Booge said:

True, we have been talking about a recession for some months. But we are now talking about a recession bigger than in 2008 and inflation that is the worst since the 1970s. The scale of the predictions are increasing. Yet to look at these indexes you would think everything is fine in the world. 

This is not what is being predicted. The recession will be longer in duration, but to be 'bigger' it would need to be deeper. The current prediction is that this will be a fairly shallow, technical, recession. If expectations change, then you may see the market falling in response.

Linton

Booge said:

The U.K. monetary policy committee this week set interest rates on an assumption of a recession lasting 7 quarters and a 7.1% reduction in GDP. If this materialises that’s a huge recession with significant job losses and real wages also reducing fast limiting consumer spending. I can’t see how this is already priced into the FTSE. 

Markets dont rise and fall on in the shorter term on reality but rather on euphoria and fear. 7 quarters is short term.  The prospect of further growth in 2024 could be enough to cause the markets to rise in 2023.

In the UK there is more than full employment,  companies wanting to grow are finding it difficult to hire the staff they need.  So a controlled recession could well be good for the UK economy.

The FTSE 100 is more influenced by global events than those local to the UK.  The major players on that index are large multinationals with relatively small UK dependency, some do no real business in the UK at all.  About 2/3rds of all shares on the London Stock Exchange are foreign-owned.  The FTSE 100 does not represent the UK economy.

InvesterJones

Booge said:

True, we have been talking about a recession for some months. But we are now talking about a recession bigger than in 2008 and inflation that is the worst since the 1970s. The scale of the predictions are increasing. Yet to look at these indexes you would think everything is fine in the world. 

I thought the indexes fell quite a lot in the first half of the year? There's your reaction to the recession fears. By the time you or I start thinking 'oh maybe we're in recession' the markets have already starting looking at the next thing. It's like that Keynesian game - you don't play to the events, you play to the way others play to the events.

dunstonh

I’m looking at the Dow Jones, FTSE, S&P 500 index etc and wondering why are they staying so stable in the context of the growing awareness of a big recession coming down the line?

Recession was known to be coming 6 months or so ago.  So, it got priced in during the first 6 months of the year.  Markets look ahead.  They don't wait until the Daily Mail goes all dramatic on news that was already known and expected months earlier.

Especially the FTSE which is more affected by European inflation/ gas price issues? 

The FTSE (shorthand for FTSE100) is mostly made up of value companies and not growth companies.  Growth companies typically take a harder hit when discretionary spending is squeezed.   Value companies tend to do fare better when that happens.  Also, don't forget that banks will do better out of higher interest rates and energy companies are making more.  Two key areas of the FTSE100.

Why is there not a crash? 

There has been.
 

The U.K. monetary policy committee this week set interest rates on an assumption of a recession lasting 7 quarters and a 7.1% reduction in GDP. If this materialises that’s a huge recession with significant job losses and real wages also reducing fast limiting consumer spending. I can’t see how this is already priced into the FTSE. 

In any recession, there are winners and losers.    A recession doesn't mean companies won't continue to make profits.  As mentioned, growth companies take a hit. Some growth companies are down 40% whereas value companies typically earn their money regardless.