MSCI ACWIGlobal equity markets is at all time high similar so some indexes like those of US stocks and Nikkei 225.
MSCI ACWI is on a strong bearish divergence both on the volume and RSI.
Expecting global markets to drop 63% from here.
IMPLICATIONS of 63% Drop in MSCI ACWI:
On Global Equities:
- a massive crash in global equity markets, likely leading to a severe global recession or even depression.
Investor Confidence:
-Confidence would plummet, causing widespread fear, leading to a potential freeze in investment activity.
Wealth Destruction:
-Significant loss of wealth for investors, especially those with retirement savings in equities, could lead to reduced consumer spending.
Corporate Impact:
-Companies might face liquidity issues, leading to layoffs, reduced capital expenditure, and bankruptcy for some firms.
Valuation Reset:
-There would be a sharp correction in stock valuations, potentially aligning them more closely with fundamentals but at a high cost to investors.
Sector-Specific Effects:
-Cyclical sectors like technology, consumer discretionary, and finance would likely suffer more than defensive sectors like utilities or consumer staples.
On Cryptocurrencies:
Increased Volatility:
Cryptocurrencies are notoriously volatile, and such a dramatic drop in traditional markets could lead to wild swings in crypto prices.
Flight to Liquidity: If there's a rush to cash or more liquid assets, cryptocurrencies might face significant selling pressure, causing prices to drop.
Safe Haven or Speculation: Depending on the narrative, crypto could see:
Increased Investment: If viewed as a hedge against traditional market failures or inflation.
Decreased Interest: If investors see all markets as correlated risks, leading to a sell-off.
Regulatory Scrutiny: A crisis like this might push for more stringent regulations in the crypto space, affecting growth and innovation.
Market Sentiment: The crypto market might be seen as either an alternative to a failing system or as another speculative bubble to avoid, influencing investor behavior.
Gold (Commodity):
Safe Haven Status: Historically, gold is considered a safe haven during financial crises. A 63% drop in equities might drive gold prices up as investors look for stability.
Liquidity Preference: However, in extreme scenarios where liquidity is paramount, even gold might see selling pressure as investors liquidate assets to cover losses elsewhere.
Inflation Hedge: If the drop in equity markets leads to aggressive monetary policy responses, gold could benefit from fears of inflation or currency devaluation.
Mining Stocks: While gold prices might rise, gold mining companies' stocks could be more volatile, affected by both the commodity price and the broader stock market downturn.
Physical Gold Demand: There could be a surge in demand for physical gold, potentially leading to a disconnect between spot prices and ETF or futures prices due to logistical or supply issues.
General Economic Implications:
Global Trade: A significant hit to global equities would likely reduce international trade, impacting economies worldwide, especially those reliant on exports.
Monetary Policy Responses: Central banks might lower interest rates further or engage in quantitative easing, which could have varied effects on different asset classes.
Currency Fluctuations: Expect significant movements in currency values, with investors favoring currencies seen as safe havens.
Geopolitical Risks: Economic instability can exacerbate geopolitical tensions, leading to further market uncertainty.
Long-term Investment Shifts: Investors might permanently alter their portfolios, potentially moving away from equities to bonds, real assets, or alternative investments.
This scenario paints a dire picture, emphasizing the interconnectedness of global markets and the potential for widespread economic repercussions.
However, the exact outcome would depend on numerous factors, including the speed of the drop, policy responses, and how different markets and investors react.
