S&P 500 stumbles again, UK collapses on latest recession fears


The pound has fallen to a 37-year low, while markets around the world have been broadly sold off following fears economies are now in recession.

The pound has hit an all-time low against the US dollar after the UK government passed a string of tax cuts aimed at stimulating the economy.

However, the markets did not react favourably.

Instead, they saw it as another sign the UK is in a recession.

As such, UK bond yields spiked, with a sense of panic about the UK fiscal outlook pushing the pound to a 37-year low.

According to AMP’s chief economist Dr Shane Oliver, the market sees the tax cuts as inflationary.

“A large UK package of tax cuts for mainly high-income earners and companies (amounting to 1% of GDP) and deregulation may have some supply side merit but that takes a long time to pay off and with the economy lacking spare capacity just risks adding to inflation and pressure on the BoE to hike by more,” Oliver said.

How did markets react?

The market is now facing the possibility of high inflation and a recession.

Unsurprisingly, the latest tax cuts have sent shockwaves through an already jittery market.

US and UK shares which were sold off on Friday continued their rout and overnight the S&P 500 fell by 1.03%.

Australia’s market was unable to avoid the sell-off, falling by 1.6% during Monday’s trading.

What’s next for investors?

Despite the current turmoil, there are signs that world markets might have even reached peak inflation.

Dr Oliver said in an investor note “our Pipeline Inflation Indicator continues to slow suggesting that inflation will fall faster than the Fed is now expecting, inflation expectations outside of Europe have fallen and Canada has joined the US in showing signs of peak inflation.”

The chief economist also highlights that over the medium term, shares are expected to grow

“Shares remain at high risk of further falls in the months ahead as central banks continue to tighten, uncertainty about recession remains high and geopolitical risks continue, Dr Oliver explains.

“However, we see shares providing reasonable returns on a 12-month horizon as valuations have improved, global growth ultimately picks up again and inflationary pressures ease through next year allowing central banks to ease up on the monetary policy brakes.”

For the latest popular stocks, see our guide that looks at the best shares to buy now across a range of exchanges, including the Nasdaq, New York Stock Exchange and London Stock Exchange, and the biggest indices, including the S&P 500 and FTSE 100.

This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested, so your capital is at risk. Past performance is no guarantee of future results. If you're not sure which investments are right for you, please get financial advice. The author holds no positions in any share mentioned.
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