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Today, Monday 24 January 2022, the CAC40 index lost -3.97% on a volume of over 6 billion euros. Unsurprisingly, this decline in stock market indices was expected by many investors. Skyrocketing interest rates and geopolitical fears are the reasons for such a decline. But in fact, without a favorable environment for a strong correction established for months, no such severe correction would have occurred. The next day, a small technical rebound, but without any conviction. This Wednesday, strong rebound, + 2.11% for the CAC40, a surprising and once again irrational increase. Sign, the increase is happening with hungry volumes on many assets. Bad sign.
Financial markets are expected to plummet significantly this Thursday, January 27, 2022. Central bank policies are changing, investors are finally taking this change of direction into account. All-round risk reduction.
What is a stock market crash?
A stock market crash is a sharp and virtually uniform drop in the prices of all asset classes (stocks, bonds, commodities, etc.) by at least 30% over a short period of time (one week to 2 months) . Below this level of decline, a decline of -10% is called a “correction” in the financial markets.
Life insurance / March 2022: storm alert for your units of account!
The genesis of a stock market crash?
The studies on these accidents are innumerable, but they do not allow us in any way to predict the arrival of an accident. But one thing is certain, history does not repeat itself. The only certainty for the occurrence of a collapse is that asset prices must be largely decorrelated from their values. On the outside, with this totally grotesque liquidity injection in recent years, investors have pushed prices up irrationally. The older ones refer to the PER (Price Earning Ratio), while most companies, these famous unicorns, only lose money.
- Collapse of 1929
- Oil shocks of 1973 and 1979
- 1987 stock market crash
- Internet bubble of 2000
- Subprime crash of 2008
- Summer 2011 stock market crash
- Chinese collapse of 2015
- Crash 2020, Covid
- Crash 2022, rate hike and inflation?
Crash in 2022
Some believe it, some don’t. But the only certainty is that nobody knows absolutely anything about it. The question, moreover, is of little interest. To win on the stock market, you must always stick to your course, your investment horizon and your risk exposure. When the risks increase, like today, it is only necessary to reduce one’s exposure to the financial markets.
The reasons for the fear
- Change in central bank policy : It’s done! The FED announced the color, the party is over. The ECB is expected to follow in the coming weeks. This is a very strong bearish signal for equity markets. But be careful, the rise in interest rates is not always a sign of a decline in the stock markets, the black mark is therefore a change in policy and not a rise in rates.
- Uncontrolled inflation : energy prices are exploding, and this is influencing the policy of central banks, which are unable either to anticipate their evolution or to control their rise.
- Geopolitical fears : Russia is betting on Ukraine, and this escalation towards a new war would also be a strong downward signal for financial markets.
Collapse of growing stocks and cryptocurrencies
Considering this definition of slump, many rising stocks have already experienced a slump for a few sessions. As for cryptocurrencies, it is not surprising that investors are limiting their risk exposure and Bitcoin is falling towards its support level of $ 35,000, although it has reached $ 30,000.
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