US Markets Face Worst Quarter in Over Two Decades
The US stock market recently witnessed one of its worst quarters in the last 23 years. The quarter ended in March, and even after that, the market has seen more pain with sharp falls in the next few trading sessions. This has made the overall decline even worse than what the data initially showed. Such a bad phase has only happened during major global events like the Japanese bubble in the late 1980s, the corporate scandals of the early 2000s like WorldCom, and the global financial crisis in 2008.
Mismatch Between Market Size and Economic Output
While the US holds only about 25% of the world’s GDP, it accounts for nearly 70% of the world’s stock market capitalization. This is a big imbalance when compared to the rest of the world, which holds 75% of GDP but only 30% of the market value. This gap has widened over time and now seems to be correcting. It is unlikely that the US can keep holding such a big portion of the world’s market cap when its economy is just a quarter of the global size.
Is a Recession Being Engineered?
Some experts believe that a recession might be purposely created in the US. The idea is that if the economy slows down, interest rates can be lowered. This could help the common people and small businesses, even if it means short-term pain for large companies and stock markets. This approach could shift focus from Wall Street to Main Street. Whether or not this is intentional, the markets seem to be pricing in the possibility of a slowdown.
Emerging Markets Show Relative Strength
Interestingly, while US markets are falling sharply, emerging markets have not been hit as hard. This could be an early sign that money may start moving towards countries with better growth potential. It also means that investors around the world might begin looking beyond the US for opportunities, especially if this correction continues.
What Should Investors Focus On?
During such uncertain times, investors should stay focused on risk management. Diversification and following strong strategies that know how to exit weak positions can help in riding out bad phases. The key is to avoid big losses and stay ready to enter strong stocks when the market turns. This approach has worked in many markets, including India.
Tough Times Don’t Last Forever
While it is clear that the current market situation is difficult, history has shown that tough times eventually pass. Markets have always bounced back after corrections. It may take time, but the recovery will come. Investors who stay patient, cautious, and prepared are the ones who benefit the most when the cycle turns.
On The Momentum Podcast this week
In Episode 2 of The Momentum Podcast, Rajnish, a seasoned investor from Pune, shares his shift from traditional investing to momentum strategies. He talks about avoiding costly mistakes, the real estate vs equity debate, and his approach to gold investing. A must-listen for young investors! Now streaming.
