Stocks down, but further to go?
Equity markets have fallen from the highs seen in February, but have yet to really enter a full correction, or a much broader bear market. The Nasdaq 100 is down around 9%, the Dow has fallen 5% and the small cap Russell 2000 is only down 2%. Elsewhere, the Nikkei 225 is down 1.5%, the Dax has lost 7% and the FTSE 100 is up 2.5%.
This is not yet a market selloff to match April 2025, or the extended pullback we saw in 2022. It could easily turn into one however, if rates continue to rise, oil prices keep surging and economic growth weakens or begins to contract.
The next US earnings season begins in two week’s time. But just as last year, this will only cover part of the impact of the latest global disruption. Trading in March will provide some clues, though since the US is less affected in the short-term by higher oil and gas prices, the initial impact will be limited.
Stock markets are at the mercy of oil prices. What happens in the Straits of Hormuz and to the price of oil and gas will be a key determinant of whether equity markets can find a low, or will continue to selloff.