One more global shock is expected in the market

- Crude, inflation and bond yields all pose a risk of moving into a new trading range.

At present, the debate over value versus growth among global investors has gained momentum. Seeing change after almost a decade of under-performing. This year will be a lot like 2000 when the tech bubble burst.

The growth of small and mid-cap stocks has been completely washed away in the last few months. This was not noticed by many due to the wide range of indicators. Shares of 10 major tech companies have risen 20% in 2021. Shares of about 4 per cent Nasdaq companies are trading below their 20-week high of 20 per cent. The Russell 2000 Growth Index is trading more than 20% below its February 2021 high.

Market momentum has been affected. Despite the market slump, stocks are trading at three times higher. Even then the assessments looked challenging. High-speed, loss-making, valuation sensitive stocks appear to be bursting the bubble. The Federal Reserve appears to be committed to reducing liquidity and tightening the monetary policy.

The situation was similar at the beginning of 2021. U.S. Bond yields increased because it was believed that after vaccination, it would be easier to deal with Covid-12 and growth would continue. The situation was exacerbated by inflation and oil prices. Inflation-based boom was created in the market but due to the delta form of the virus the situation worsened and growth estimates fell.

Today, it seems that we are back in early 2021. Oil prices are rising. Inflation in the US has reached a 30-year high. The Federal Reserve may raise rates for the first time in March and there is talk that its balance sheet may shrink. No one is talking about temporary inflationary pressures. With rising inflation, yields are starting to pick up. Yields on 10-year bonds are at their highest level since Kovid. Oil, inflation and bond yields all risk moving into new trading ranges.

Given this situation, the possibility of another global shock cannot be ruled out. Ukraine could be the cause of the crisis, the re-creation of Kovid or the new geopolitical tensions between the US and China. If the Fed aggressively raises rates and plunges the economy into a severe recession as well as a devaluation in the absence of any new shocks, investors should at least expect stronger performance from the near future, financial, energy and industrial sectors. Global commodity markets are also expected to remain high. Thus, the market seems to be gearing up for a new movement.