On Tuesday, HSBC and Standard Chartered both experienced their stock prices plummet by more than 10% overnight. This sudden slump in turn has resulted in a pensive market mind—one that continues to forecast a looming economic recession. Shares of banks have tanked. That has caused some market observers to reconsider how healthy the financial sector really is as fears of a recession increase.
“The thing that made me catch my breath was the fall in the banks,” remarked a well-respected market watcher, highlighting the impact of these losses on investor sentiment. These investors are seeking safety in a tumultuous market. They are piling into Treasuries, considering them a safe place to lock down money during the pandemic. The change will almost certainly reduce the UK government’s cost of borrowing. Look for a cut of between £5 billion and £6 billion per year.
Economic analysts define a recession as the point at which an economy’s total spending begins to shrink. This happens over two consecutive three-month periods, featuring an obvious dip in exports. Recent reports indicate that the UK economy grew by a mere 0.1% between October and December of last year, only to shrink by the same amount in January. On this coming Friday, we will get the first real-time estimate of how well the UK economy performed in February. We know it will provide new insight into our economy’s recovery from the pandemic.
Even with these concerning signs, most experts think a major recession is a pipe dream right now. Predictably, most economic commentators have lamented the higher likelihood of recession in the US, UK, and EU. There’s a lot of excitement around that shift. That was the policy strategy behind former President Trump’s announcement of 25% tariffs. Investors have reacted to this announcement by increasing uncertainty and their perception of risk.
Declining share prices, though cause for concern, does not necessarily mean that an economic reckoning is at hand. Historical precedents such as the 1930s Great Depression, the aftermath of the Great Financial Crisis, and the panic surrounding the pandemic serve as examples where synchronized downturns occurred across major economies. These episodes should serve as a wake-up call to investors that at times stock market volatility can be deceiving.