As of: 01/24/2022 7:25 p.m
Share prices in Germany fell by 3.8 percent within one day. The triggers were not corona concerns, but the recent escalation of the Ukraine conflict and the pace of interest rate increases in the USA.
The interest rate turnaround and the Ukraine crisis have been weighing on the stock exchanges for weeks. Share prices have been falling since the beginning of January. However, the most recent developments led to a veritable sell-off on the first trading day of the week: the leading German index, the DAX, fell by 3.8 percent and at times slipped below the 15,000 point mark. It’s the highest one-day loss since late November, when the emergence of the omicron variant of the coronavirus rattled markets, and one of the heaviest-losing days since the pandemic began.
The recent sell-off also continued on Wall Street into the evening. The leading index Dow Jones lost more than two percent by the early evening German time, the technology exchange Nasdaq fell by almost four percent.
Aversion to risk
Why are prices falling now? In particular, shares in technology companies and corona winners were sold. This is a sign that market participants increasingly want to avoid risks. “The risk mix of geopolitical tensions, a rising oil price and the prospect of continued high inflation rates and higher interest rates means that investors are currently avoiding stocks,” said analyst Jochen Stanzl from the online broker CMC Markets.
Worrying about escalation in Ukraine conflict
After the topic of Ukraine had recently played a rather subordinate role on the stock exchanges due to the intensive diplomatic efforts, investors were startled by the latest escalation. The planned increase in NATO troops in Eastern Europe, for example, made the risks of the confrontation clear.
Fearing Western sanctions, investors increasingly divested themselves of Russian stocks. Moscow’s leading index fell more than eight percent to a 13-month low. That was the biggest price slump since the Corona-related stock market crash in March 2020.
Concerns about a faster turnaround in interest rates
In addition, the topic of rising interest rates is being discussed more intensively this week because the American Federal Reserve is meeting on Tuesday and Wednesday. At the press conference on Wednesday, Fed Chair Jerome Powell will give further signals for the pace of interest rate hikes, which had already been announced in principle after years of low interest rates. Recently, concerns had increased that the Fed could move faster than expected with its interest rate hikes. Market participants are now firmly anticipating the first interest rate hike on March 16, and some are already expecting the US Federal Reserve to raise interest rates five times this year.
What is certain is that the “best of all worlds” for the stock market, ie extremely low or even negative interest rates, will come to an end this year. This tends to make interest-bearing investments, particularly bonds, more attractive as an alternative to stocks.