MSCI’s global stock index has risen 7% this year despite market uncertainty in the banking industry.
Although confidence was shaken by the collapse of two U.S. institutions and Credit Suisse’s shotgun merger with UBS, equities were buoyed by the belief that the Federal Reserve and others will soon stop the most aggressive interest rate increase cycle in decades.
Nevertheless, alarming signs about global markets are piling up behind the surface.
The Swiss authorities’ sudden decision to erase $17 billion in Credit Suisse bonds jolted an essential market for European bank borrowing and caused customers to flee regional banks in the United States.
Experts say this weakens the industry’s capacity to lend money to businesses.
According to polls conducted by central banks, which has traditionally been a precursor to poor stock market performance, the Lending criteria are being tightened by U.S. and European banks.
Companies’ profitability and stock values suffer due to higher interest rates and lower borrowing availability.
When a recession hits the United States first, it spreads globally and affects financial markets elsewhere.
The U.S. ISM manufacturing index, a forward-looking measure of economic health, fell to its lowest level since May 2020 in December, indicating a fifth consecutive month of loss.
Tech equities, which have led the market upward in 2023, aren’t always recession-proof.
The most significant sectoral component of the MSCI World Index, technology, is up 20% this year, while banking, healthcare, and energy are all flat or down.
The S&P 500 index in the United States increased by 7% in the first quarter and has maintained that rise ever since. According to Citi, seven large-cap technology companies accounted for 92% of the first-quarter gain in the S&P 500.
According to data compiled by Morgan Stanley, March was the only month in the last 20 years in which financial equities dropped by 10% or more while the MSCI World index remained unchanged.