The start of this week on the Tel Aviv Stock Exchange was one of the most dramatic in recent years. In two days, the main indices were down nearly 7%, causing it to fall 9% in eight sessions from its peak at the beginning of the month.
The downside trend applied across sectors, and was part of a global turnaround led by stock markets in the US, which has been fueled by investor fears that favorable conditions for equities are ending. Looking ahead, it appears that the markets will remain uncertain in the near future, implying a continuation of the negative trend.
The Nasdaq was down 5% at opening Monday, though the trend changed at the end of the session, which ended up 0.5%. Similarly, the Tel Aviv Stock Exchange also reversed direction yesterday after two days of sharp declines, but it doesn’t appear to be necessarily a permanent reversal.
Investors’ fears mainly stem from expected interest rate hikes by central banks under the presidency of the US Federal Reserve, against a backdrop of rising inflation, and as part of the Fed’s policy changes and lack of support for financial markets.
Even though economists and analysts do not believe that we are witnessing a transition from a bull to a bear market, they expect continued volatility and uncertainty, at least in the near term. “The market is very nervous at the moment; it has no direction and is trying to find support points,” says Doody Resnick, interest rate strategist at Leumi Capital Markets. “I would say that high volatility is likely to continue, especially because of the Fed’s next interest rate decision today. The Fed’s announcement can help us understand where things are going and how aggressive it is as the year goes on. Will happen.
“There has been a very significant sell-off that started in the US at the beginning of the year and then trickled through to Israel. The background is fears created by the high rate of inflation in the US, which eventually reached 7%. Last year of, and is likely to rise slightly earlier this year. With higher commodity prices, a geopolitical crisis in Ukraine, and the further spread of the Omicron coronavirus pandemic, there is a very heavy weight on the market.”
Are we seeing a temporary correction or a longer term trend?
“It has been an aggressive sell-off, but a sell-off nonetheless. I don’t think we are entering a bear market. There is a play going on, but as far as the sell-off is concerned, I would guess that most The fall is behind us.”
However, Resnik adds that “if the Fed’s interest rate announcement is faster than expected, or if the situation in Ukraine develops into a war and oil prices rise, it could rekindle the bonfire.”
Rafi Gozlan, chief economist at IBI Investment House, is less optimistic. “The situation is more complicated than just the correction of growth,” he says. “After a very strong rally, the starting point is too much pricing on the markets, and we are in a panicky and volatile period. We probably haven’t seen the bottom yet.
“You have to understand that the trend is much less positive than it was last year, and the trend will not change until we see a calmer inflationary environment in the US. The focus should be on the data, and the market in relation to the decline in inflation. But hope.”
The Fed’s Target Is Inflation”
“The US is leading the markets, and because there is such high inflation, until we see a calming signal, the markets will be under pressure, as there will be a rapid influx of liquidity,” explains Gozlan. “Over the years, whenever the market sneezed, the Fed backed out, but now the story is different.
“Central banks have pulled the markets upward over the past year or two. Now, the Fed has its sights set on, and if it raises interest rates, that doesn’t affect commodity prices and inflation, but the stock market. It affects if it is not cared for.”
How does Israel’s market look in relation to what is happening in the US and globally? Should people make changes to their investment portfolio?
“Here, the story is simple. The better the Fed does on the inflation front, the more work it does for the Bank of Israel. You have to remember that inflation is not very high here in any case, and most of it is imported, product and commodity prices have increased.”
On the local market, Gozlan says, “the economy here is dependent on technology, but the stock market is low – and it’s technology that’s leading the downturn. Finally, when it rains overseas, the storm hits us too.” and obviously the trend itself is global. Generally, however, when world markets are bearish, our markets do relatively well and are less severely affected.
“We are maintaining Ricochet, and looking ahead over the next few months we are still headed in a negative direction until inflation subsides. Hence it is necessary to go for more defensive investments, whether bonds or In equities. Looking ahead, the coming months will create good opportunities, as the market direction does not mean the economy is going anywhere.”
“It’s true that the market here has taken a big hit in the past,” says Reznik, “but before that it was one of the best in the world.” The Israeli market continues to outperform the US market as inflation is low and the Bank of Israel will not change its interest rate for at least the next six months. Overall, Israel’s economy is doing well and recovering from the coronavirus pandemic. So the situation in Israel looks good, and the Bank of Israel is also quite optimistic about the economy in its forecasts.
“What happened in the last few days is mainly public pressure, but if things calm down globally, the market will calm down here as well. You have to remember that the main fear is about technology stocks, which The boom followed the start of the pandemic, but the market in Israel is far less technology biased.
“When the ship is rocking, you have to wait. In general, there is no real reason to make big changes to an investment portfolio, even for the long term, and I don’t see a lot of options either. The bond market isn’t attractive. Enough to switch to that.”
Published by Globes, Israel Business News – en.globes.co.il – on January 26, 2022.
© Copyright of Globes Publisher Eatont (1983) Ltd., 2022.