Volatility has been an unwelcome guest for stock markets worldwide as central banks are trying to keep inflation under control with a more hawkish stance. Increasing interest rates continue to be the biggest current challenge facing investors in the markets, with a few exceptions in specific countries and assets.
Recently, the S&P 500 has seen a drop of around 4% amid worries that the Federal Reserve may raise interest rates more aggressively than expected. The Dow Jones Industrial Average has had a similar drop, closing down 3.74% by March 20th.
The US Employment Cost Index showed that wages have grown more than expected and as a result, the increase in wages can push consumer prices higher. The US Federal Reserve responds to these data by increasing interest rates to control inflation.
In Europe, the ongoing situation in Italy has caused the Euro to weaken against the US dollar. This political unrest has also caused the Euro Stoxx 50 to lose over 4.5% during the last week. Germany’s DAX index has also had losses of 4%.
Asia markets have suffered falls as well due to the higher US rates. The Nikkei 225 has dropped close to 2.5%, and the Shanghai Composite has seen losses of around 1.5%. The Hang Seng declined 2.74%.
It is not all doom and gloom for investors in the stock markets. Safe havens such as gold have been the beneficiaries of the higher uncertainty levels, as investors have started to move their money to gold-based investments. ETFs such as the SPDR Gold Shares (GLD) have benefited from the increased interest in gold and have risen close to 6% during the last week.
Overall, stock markets remain in a risk off sentiment, as investors navigate their way through the uncertainties that come with higher interest rates. One thing is certain, there will be further volatility in the days and weeks ahead as investors wait to see what the global central bank’s stance will be.