Boo! Halloween approaches fast. And markets look comparably ghostly and ghastly. Both world stocks, bogged in a bear market, and the TSX flounder near summertime lows. Consensus opinions fear worse. “Capitulation” – that cascading panic-selling common as bear markets end – hasn’t come.
World stocks’ peak-to-trough decline in U.S. dollars is minus 26.1 per cent – a minor bear market historically. But the U.S. Federal Reserve interest rate hikes led to the greenback surging, causing the “dollarization of terror.” It mutes global stocks’ declines in non-greenbacks. In Canadian dollars, world stocks’ lows were only minus 21.6 per cent, barely a bear. In euros, British pounds and Japanese yen, the lows haven’t hit bear market levels, merely minus 16.9 per cent, minus 15.
Long-term bonds aren’t much better, with 10-year Canadian bonds down 13 per cent and U.S. Treasuries down 17 per cent this year. Most observers predict interest rates must rise more – hence, bond prices would fall further. Why, then, swap stocks for bonds now? Of course, the wicked witch of inflation fear flies everywhere, which would vanquish bond interest payments’ value.
Gold, that supposed master inflation hedge, shined brightly in February and early March. Since then it tarnished, down 13.3 per cent, more than global stocks’ decline of 6.2 per cent over the same span.