1: Market stress is rising with financial conditions tightening to levels not seen since the Global Financial Crisis (first chart). Rising interest rates, flattening yield curves coupled with skyrocketing prices could ultimately mark the approach of a global recession. Moreover, the risk of financial shock caused by a Russian debt default is rising, although most economists argue the risk remains contained (I remember when they said that about sub-prime loans in 2007).
Thankfully the world walked into this mess with a very strong economy and labour market, but the same could have been said heading into the 2008 financial crisis.
Consequently, Goldman Sachs recently lowered market targets, although the base case is still for a meaningful rise (second chart). Importantly, however, they forecast the S&P 500 to decline to 3600 if the economy slides into recession, which seems increasingly likely given the growing financial and economic pressures.
2: As the world lets its guard down and gradually opens up and ends mask mandates, global Covid-19 cases are on the rise again (first chart). Luckily the virus seems to remain relatively tame as hospitalizations aren’t rising to the same degree (second chart).
Still, China just shut down the southern business centre of Shenzhen, a critical global node for the production of parts used in global manufacturing. With inflation running rampant, additional supply disruption is the last thing the world needs.