Above link is a very good description of what's dogging the stock markets now.
The HYG or High Yield Bond ETF, looked like it was finally breaking up with a long green candle stick but the surge failed and fell to a new low. It usually leads the S&P500 by a few days to a few weeks. It means the S&P500 is likely to test a new low.
Inflation is beginning to bite. The US has hit 8.6% CPI. Here's what I think is going to happen.
1. Oil prices will hit a record USD200 per barrel at the end of 2022. The sanctions against Russia, the rest of the world's slow down in exploration in the last 7 years, the push towards ESG without an intermediary plan has caused this. Europe is pretty much screwed this winter as Russia will turn off the tap on natural gas.
2. Inflation will continue to rise. Higher oil prices eventually filters to consumer costs. Oil is used for many things. From plastics, packaging, roads to transportation.
3. Central banks will be more concerned with fighting inflation than to boost the economy. There's very little central banks can do this time. Unlike in 2008, and 2020, when they could print money because inflation was so low.
4. Corporate earnings will decline.
5. I believe the stock markets will not see a "V" shaped recovery. It will be a "U" shaped one unfortunately. There won't be QE this time to help.
6. Russia control of southern Ukraine's entire coast line means food exports from Ukraine will be severely constrained. There goes one of the biggest exporter of wheat and many other important foods for the world.
7. Sanctions on Russia will mean the Western world turning to Saudi for supply. They may even turn to Iran. The US may also start drilling and refining to increase supply. But it takes time for US to increase supply. China and other friends of Russia will receive crude at discounted prices. The Russian oil may find its way to the rest of the world through smuggled channels.
8. Because of access to cheaper oil, China will have an advantage over the US in terms of stock market performance. China will ultimately open up from its Zero Covid policy. The government will be focused on reflating the economy. Whereas the west will struggle with inflation.
9. Chinese stock markets may outperform the west in 2022.
Standby for the S&P500 to drop another 10% before going sideways. The recovery won't be that fast.
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