During normal times three things, invariably, impact the stock markets the most. Inflation, monetary policy and geopolitical situation, notwithstanding any rare event like blockage of Suez Canal.
Unfortunately, global stock markets experienced all these simultaneously during the past year. The Russia-Ukraine conflict, rising inflation and interest rate hikes were some significant events globally seen this year.
When the markets were on their way to recovery from the tumbles of previous two years because of the pandemic, Covid-19, closely followed by Omicron, the world was struck by Russia Ukraine crisis. The disruption in supply chains and shortage of items produced by these two countries led to climbing inflation. As a quick way out to control inflation, most of the central banks increased interest rates and tighten spending.
While talking of the current scenario, it would be relevant to mention some other occasions when the situation had appeared very gloomy without any near solution in sight.
US Housing Bubble Burst in 2008 was one of the very significant events of this century that led to a period of low growth and gripping the world with the global financial crisis.
The housing bubble burst in 2008 had plunged worldwide economies into a recession. Many European countries failed to even generate enough economic growth to pay back bondholders.
Though it began with the fall of Iceland’s banking system in 2008, Portugal, Italy, Ireland, Greece, and Spain soon followed suit in 2009. The result was a loss of confidence in European businesses.
More recently, COVID-19, though originated in Wuhan, China, in early December 2019, spread worldwide by March 2020 and reached pandemic status. The preventive lockdowns resulted in declining production and affecting supply chains worldwide. Both these happenings resulted in massive fall of the stock markets.
Investors make good returns when the market rallies, however, they panic at the first sign of it going down. The stock markets rise and stock markets fall, always because of some reason or the other, but leave behind a lesson to be learnt.
It should be understood that even though stock markets are volatile, it remains the most preferable avenue to generate wealth over a longer term as these are able enough to recover from crashes, the history validates.
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