Faced with the scenario of an international economic recession, it is true that it is strange that the equity markets have not recognized such a possibility. If not, on the contrary, in most cases the indexes remain in an uptrend which certainly attracts the attention of some small and medium investors. They wonder if the stock market is really discounting the economic recession that is already present in some of the motor countries of the international economy.
In this general context, it must be remembered that in stock market crises they always appear with the fall of a value. Or perhaps it may be that this scenario can become a bomb that investors have not seen yet and that would be very serious for their personal interests within the investment sector. To the extent that their main effect is that they could get hooked in their positions on the stock market for a long time. That is, very far from the purchase price.
For this reason, it is very important to highlight that the scenario of the economic recession is reflected in the valuation of financial assets. But in a very slight way and that is not appreciated by small and medium investors. In this sense, the selective index of Spanish equities, the Ibex 35, has only dropped 3% in the last six months. And at similar levels in other international places of special relevance. In what constitutes one of the signals about the fact that something is happening in the international economy.
Economic recession
With regard to Spain, it should be noted that the Bank of Spain notes that the Spanish economy and private consumption no longer have the resistance that was anticipated just a couple of months ago. To the point that a few days ago a strong downward adjustment of four tenths was announced in its forecasts, and it has warned of a notable slowdown in job creation, which has grown by half since May. Instead of the 2,4% increase in GDP that he expected for this year, to lean towards an advance of only 2%.
For 2020 and 2021, the central banking entity forecasts a growth of 1,7% and 1,6%, respectively for each of the exercises. That is to say, already below 2% and with a downward trend that, after all, may have an impact on the national equity financial markets. Although at the moment it has not been collected in all its intensity and this is a fact that retail investors should take into account from now on. Where one of the keys is at the level of 9.000 euros by the Ibex 35, both in one direction or the other.
Increase in fear index
Another of the signals that financial markets offer us is that the VIX, the so-called fear index, has experienced notable growth in recent months. This is a clear warning that a bearish movement may be brewing caused by a strong economic crisis. While on the other hand, volatility in the VIX has also increased with some relevance, with daily appreciations above 2%, percentages that had not been seen since 2013. This is a figure that cannot go unnoticed by young and old. medium investors.
On the other hand, the fear index is indicating that equity markets may fall in the coming months. In a scenario that anticipates a not positive situation for the stock markets and this factor must be vigilant in the face of what may happen from now on. There will be no choice but to be aware of the evolution of the VIX to show whether or not the moment of entering the stock market. As an instrument to preserve our interests and especially our capital destined for the stock market.
Weakness in cyclicals
Another of the notes that the equity markets are offering us and that in this case the most relevant data is the weakness of the values denominated as cyclical. In other words, those that depend on an economic cycle and that perform better than the rest in expansive economic periods. While on the contrary, its worst behavior takes place in recessionary periods of the economy. Steel companies are a clear example of this class of very special values, as are the linked to these economic cycles, like the one of the manufacture of automobiles.
Well, these stocks have plummeted in recent months and it can become another signal about what can happen to the international economy. As has happened in periods of similar characteristics that have developed in other decades. Therefore, it will be another of the data to monitor from now on if we want to operate in the equity markets with greater peace of mind. Because if the financial markets pick up the scenario of economic recession, there is no doubt that the values of the cyclical sector will be some of the most affected in the national markets and outside our borders.
Increased volatility
This is another of the warnings that we may have to show whether the equity markets are going to pick up the scene of a severe economic recession. Because it would generate a major hike in the stock markets and that it would be very visible to small and medium investors in the coming months. Where the best we can do is undo positions in these financial markets given the risk that stock market operations can run.
This increase in profitability may be another of the signs that are telling us that we are facing a major economic recession. But that for now has not been included in the price of the shares of companies listed on the equity markets. And that is reflected in the fact that the changes are increasingly striking, with rises and increases of more than 3% or even 4%. That is, inviting small and medium investors to carry out trading operations even in the same trading session. As can be seen in the last sessions that are taking place in national markets and those outside our borders.
On side levels
The consequence of all of these effects is that the stock indices do not have a defined trend in recent months. At times it is bullish and at other times bearish, but in any case it is very complex to operate on the stock market. This is a sign of identity that can be detected in the last twelve months and that in a way has thrown a good number of small and medium investors from the equity markets. That is, we do not know what to expect and with the obvious risk that at any moment the big pull down on international stock exchanges. To the point where we can get hooked on investments.
While on the other hand, we cannot forget that it seems that this is a period of waiting for something important that may happen from now on. From this point of view, it can be said that the economic recession is not discounting in the price of shares of publicly traded companies. Something that can generate great fear to enter the equity markets on the part of a large part of small and medium investors. To the point that the outlook for investment may not be anything positive for the next few years.
Nothing positive scenario
With this general scenario, liquidity is an added value that can bring many benefits to retailers. If not, on the contrary, you have to fear the worst and it is preferable opt for other more defensive or conservative investment models. As for example, some investment funds that combine this investment with other financial assets. As a formula to improve the balance of our savings account. To avoid very unwanted situations that can arrive at any time and much more with the new macro data that are appearing these days.
While finally, it must also be emphasized that bullish traps can be generated so that retail investors can fall before the strong hands in the financial markets. This being one of the most serious risks in which we can get trapped and that are doubtless, it can make us lose a lot of money in the operations carried out. And that can be solved through a series of preventive measures that we can put into practice to avoid unwanted situations from all points of view. Which is, after all, what we have to do in troubled times for stock markets around the world.