The recent deterioration in stock valuations worldwide has understandably shaken up many investors, with many fearing that the sharp declines could be indicative of an impending market decline. However, the behaviour of so-called safe-haven markets provides an insight into the true cause of this current sell-off.
Much of this recent decline is down to inflation expectations, with a jump in average earnings this month raising expectations of Federal Reserve (Fed) tightening. Yesterday’s 0.4% rise in monthly consumer price index (CPI) has brought those same fears back to the table, with the Dow Jones falling 450 points in the immediate aftermath of their release. The rise in inflation and wages highlights that this is a sell-off borne from economic strength rather than demise. This is highlighted by the reaction within some of the main ‘haven’ markets, which has confused many.