Half of 2022 has already ended and the signs the market gave us were relatively straightforward. The global macroeconomic situation is full of uncertainty (short-term/mid-term speaking), which is expected in times when inflation is peaking. Where will the equity market go, and even more important – WHEN will the change of trend start? One thing is certain – at the moment nobody knows.

Global equity sentiment

The S&P500, the world’s most known index, had its worst H1 since 1970. From the start of 2022, S&P500 lost 18.2% of its market capitalization. Nasdaq reported an even worse situation – a 25.7% YTD decrease. Bottom line – even a passive investor in those indices has had to stomach a 20% / 30% decrease in their portfolio. Naturally, every investor has the same question – when will the economy stabilize? Are we even done yet, or has it just started?

Regional sentiment

When looking at the region, a conclusion about uncertainty is also present. But a decrease in prices lagged a bit and did not happen yet (at least not in amplitude compared to global indices). Still, let’s remember that region, too, is experiencing high inflation. This „little“ detail is crucial – as inflation can not be ignored. The region, just as always, prices everything with a lag to global markets. Regional companies reported solid Q1 results (as no negative impacts were felt so far) and even Q2 results are expected to be bearable. Yet, the market movement was clearly not supportive of this fact – confirming the fact that future uncertainty is high and is being priced in. The majority of regional blue chips reported negative YTD even as they reported solid results with NLB being an exceptional example – NLB noted a strong Q1 that was boosted by the acquisition of Slovenian Sberbank’s subsidiary and still reported -21.3% YTD return.

Global macroeconomic situation

Let us remind ourselves of everything that is currently dictating market sentiment and movement. Inflation started to boil so everything changed. When Covid-19 hit, America’s economy was boosted by „helicopter money“ as quantitative easing was present. But we need to turn the tables around now due to mentioned inflation. The only „detail“ that is different than now. Fed already raised its reference rate from the near-zero zone by 1.75 p.p. to fight the enemy, while ECB is expected for sure to increase by at least 25bps at the next hearing. The even higher increase should not come as a big surprise. The bottom line – it is simple. We have inflation as a long-lasting bull run endured a good few circumstances due to easy monetary policy. Consequently – inflation caught up and central banks already started to increase interest rates as an answer to the enemy that had been in a shadow for a long time. Higher interest rates, which will most definitely slow an economy – that, we are sure of.

What actually is straightforward then?

The divergence of reported results and market movement is a clear and straightforward sign that uncertainty is peaking with inflation. Solid results combined with not supportive market movement is a direct result of market uncertainty being priced in. That is the only conclusion one can come to at the moment from the divergence of market movement and results. To conclude – an apparent negative investor sentiment influenced equity market movement. Even though financial results were solid in a Q1 (especially for a few selected regional gems, like mentioned NLB) and Q2 should be tolerable too, investors started to price in the only certain thing in the market at the moment– uncertainty.