European stock markets traded cautiously on Monday, following a sharp drop in stock prices last week as investors are reluctant to take riskier investments while central banks raise interest rates due to high inflation. The STOXX 600 index of leading European stocks was up 0.2 percent this morning.
Investors in France are reluctant because President Emmanuel Macron lost control of parliament in Sunday's election, which, investors fear, could lead to political paralysis in the country. Stock markets have been under pressure for weeks because it is not known how long the cycle of rising central bank interest rates will last to curb high inflation.
And due to rising interest rates, the growth of the world economy will slow down, which will negatively affect the business of companies. Therefore, investors are not prone to risky investments, such as stocks. Last week, the MSCI index of all world stock markets fell 5.8 percent, its biggest weekly loss since March 2020 and the corona crisis.
"With a rapid slowdown in the economy and the Fed's commitment to price stability, we believe a shallow recession in the fourth quarter is very likely," Nomura analysts warn. The focus is, of course, the world's largest stock market, Wall Street, where the S&P 500 index plunged into the 'bear' area last week, more than 20 percent below its record level.
BofA analysts wrote in a review of the situation that it is the 20th ‘bear’ market in 140 years and that the average decline for ‘bear’ rule is 37 percent. Analysts hope that this 'bear' market will not last 289 days, as long as the 'bear' rule has lasted so far, because that would mean that the stock market will not recover before the end of October this year.
What Is a Bear Market?
A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
Bear markets are often associated with declines in an overall market or index like the S&P 500, but individual securities or commodities can also be considered to be in a bear market if they experience a decline of 20% or more over a sustained period of time—typically two months or more.
Bear markets also may accompany general economic downturns such as a recession. Bear markets may be contrasted with upward-trending bull markets.