US stock markets experienced the worst January since the global financial crisis of 2008-2009, writes the Financial Times. Thus, the S&P 500 index fell 5.3% in January, which was the largest monthly drop since the start of the coronavirus pandemic in March 2020 and the lowest since 2009.
The technology sector suffered even more: the NASDAQ Composite index sank by 10% in January, and at its peak the drop reached 15.7%, the newspaper writes.
As the FT points out, several factors influenced such dynamics of the stock market in the United States: investors sold off assets amid the threat of an increase in the Fed’s base rate, a decrease in corporate income of American companies, as well as geopolitical tensions due to the situation around Ukraine.
Last week, Fed Chairman Jerome Powell said that the regulator could raise the base rate as early as the next meeting in March. He did not rule out a further increase in rates if inflation persists or rises. Consumer prices in the US are rising, with an annual increase of 7% in December, which is the highest level of inflation since 1982, the country’s Department of Labor said earlier.
On January 31, the president of the Federal Reserve Bank of Atlanta, which is part of the Fed, Rafael Bostic, said that in order to fight inflation, the Fed could go for a sharper increase in the base rate. He allowed the first increase at once by 50 basis points, while most analysts and economists expect an increase of a maximum of 0.25 basis points.
Geopolitical risks are notoriously difficult to gauge in equity markets, but several investors said rising tensions over a potential Russian invasion helped spread the downtrend in tech stocks to the broader market in the second half of January. Even without a military escalation, possible sanctions against Russia could lead to a further increase in world energy prices, which in turn will lead to an acceleration in inflation, the newspaper notes.
On January 25, US President Joe Biden allowed the imposition of personal sanctions against Russian President Vladimir Putin during Russia’s invasion of Ukraine. In general, the United States and a number of other European states have been talking about potential restrictions since the fall of last year, when reports began to appear in the media about the accumulation of Russian military contingent near the Ukrainian borders and about Moscow’s alleged plans to invade the republic. At the moment, several bills have already been published in the United States that provide for sanctions against the top military-political leadership of Russia, as well as economic, sectoral restrictions, and sanctions against large companies, in particular banks and commodity enterprises.
In Moscow, commenting on this, they said that they were conducting exercises and moving troops only on their own territory at their own discretion. The Russian Foreign Ministry stressed that the very idea of a war with Ukraine is unacceptable and the country is not going to attack anyone.