Why have markets all around the world tanked 10 to 25%
Bitcoin is down 45% from highs, Ethereum down 50%, Nasdaq down 13, Netlfix down 40%, zoom down about 60% from 6 months high, Palantir down 63%, Russian ruble down about 6-7%, Russian RTS index down about 20% from the start fo the year, ARK funds is getting hammered, Indian tech stocks are getting crushed, advertisement rates are down all around the world, and so on and on. To draw out a clear picture growth stocks are feeling the heat and investors are shifting their focus to value stocks. Growth stocks have corrected the most, and value stocks seem to hold ground.
There are two reasons for all the volatility in the market. As decided in the previous fed meeting(click here to read my last article on the last fed meeting), the fed will be systematically reducing asset purchasing and QE, and interest rate hikes were planned to begin this year. The tapering down on bond-buying is reducing by about 15 billion every month which will eventually stop by march(as planned), so as time passes there is less money influx into the economy. On the other hand, there is traction on money printing, more stimulus checks aren't coming, and eventually, the money that kept the market running and the party going for the last two years is going to disappear. Interest rates according to me will be seeing about 4 hikes this year, starting with the first quarter. As the date for the first interest hike gets closer the markets are stressing out even more( to read my last article on the effect of interest rates on the economy and stock market click here). Now since interests will be hiked, inflation is going to come under control, therefore cryptocurrencies that are used as a hedge against inflation are plummeting. About 1 trillion dollars has been wiped out of crypto markets in the last few days, on the other hand, companies' expenditures are rising, to balance that they are increasing the prices of their products. You can see this in various companies like Netflix. Companies are also cutting down on advertisement. As a result, advertisement rates have dropped significantly over the last 1 month.
Adding to this is the NATO-Russia-Ukraine stand-off. America has advised its citizens to leave Ukraine. About 1 lakh troops are stationed by Russia, and rumors suggest that it might invade Ukraine. In a bid to counter that NATO and US have sent their armaments to Ukraine. US and NATO Troops are on stand by, America has threatened to sanction Russia out of the SWIFT payment system. SWIFT payments system is a type of transfer used to transfer funds overseas. SWIFT is based in Brussels, and has a strong American influence, and could consider banning Russia from SWIFT payments, and this would impact Russia largely as Russia is an oil exporter and most of its transactions are made through SWIFT. Whether Russia would invade Ukraine is unclear, but there is an unprecedented troop build-up like never before on the Ukrainian border. Russia has done something like this before, when it invaded Crimea, the difference is, the stakes are high this time. This is again putting pressure on the oil markets and the global financial markets. All these factors combined have made the perfect environment for the correction. Whether this correction is the start of something big can't be said, but in my opinion, this correction is healthy to the market in the long run, as company valuations of growth stocks are adjusting back to the old school type of valuations, and the markets are pricing in the eventual interest hike and slow economic growth that developed countries will be experiencing in this year.