For the month as a whole, the American S&P 500 rose 1.6 percent measured in USD, the European Stoxx 600 ended up 2.6 percent measured in EUR, and the Nordic VINX was up 5.2 percent measured in NOK. Here at home, the Oslo Stock Exchange was up 2.8 percent (OSEBX).
Fear of recession percists
Fear of recession has been a topic for a long time and has been ongoing for over a year now. Expected outcomes have shifted between "soft landing," "hard landing," and "no landing" over the last six months without materializing. Usually, a recession is triggered by a catalyst, and the banking crisis may be such an event without having given greater ripple effects and triggered a recession. Indicators such as low unemployment suggest that we are in the late-cycle phase. Historically, unemployment has rarely leveled off and stayed at low levels for a long time. At the same time, with the strongest and fastest monetary policy tightening in 40 years, it is perhaps not surprising that the market has been obsessed with talking about a recession over the past year. We are now seeing the repercussions of the abundant liquidity injected during the pandemic. This is one of several explanatory factors for the rapid interest rate hikes we are now seeing.
Rate hikes remain in Europe
The American central bank is likely done tightening after the May meeting, in part because of the banking crisis, which requires them to consider financial stability. There are still at least three rate hikes remaining from the European and British central banks, according to market pricing. Most are surprised that households and businesses have so far absorbed the sharp rise in interest rates. At the same time, the effects of tightening have a lag, so it may be too early to say that we are over the hump.
Different this time?
As a counterargument, it should be noted that a potential recession will be among the most forecasted in history. In such a climate, rational companies and households can adapt in advance, for example by taking less risk or building up a buffer. Expectations themselves can thus contribute to future outcomes. This is one of the tenets of those arguing for a soft landing. It can also be added that we are still seeing normalization after various pandemic effects. Although all recessions are different, a common denominator is that unemployment reached historically low levels before the economy hit a ceiling, which is not so different this time.
The way forward
Global stocks, measured by MSCI World in local currency, rose by about two percent. European stocks have had particularly good performance this year, reaching a new all-time high in April. For now, company earnings still seem to be holding up well as the first quarter results season is underway, while the interest rate peak of the American central bank seems to be just around the corner. The specter of inflation will likely continue to loom over the market, but overall, stocks still seem like a good investment option for long-term savings.