The first trading week of 2023 is proving to be a rough one for the global economy, as stocks in the United States continued to drop as the week progressed. 

The possibility of a new surge in cases worldwide due to the end of China’s stringent zero-Covid policy is seen as one of the primary reasons behind the pessimistic action on Wall Street and beyond. 

What’s Going On?

The grim mood that swept through the global markets towards the end of the year dampened the possibility of a rally in the final week of trading for 2022 and the sentiment extended into the first working week of the new year.

Global equities experienced a loss of about one-fifth of their value, marking the biggest decline since the 2008 year on year. The global bonds index, on the other hand, fell by 16%.

The S&P 500 fell to its lowest since November 2022 as volume dropped by 20% beneath the 30-day average. Likewise, ten-year Treasury yields were driven up by 3.88%, while the dollar climbed to highs early in the week.

Meanwhile, the tech-heavy Nasdaq also noted that many tech stocks were under pressure despite the way electric vehicle maker Tesla prevented a week-long rout precipitated by a rather pessimistic forecast that demand for its products had begun to taper off.

The Experts Weigh In

Laffer Tengler Investments CEO and chief investments officer Nancy Tengler opined that investors became extremely pessimistic because of where the markets currently are in the rate-hiking cycle, particularly in the United States where the Federal Reserve has been aggressively hiking interest rates in a bid to halt surging inflation. In which case, Tengler warns that the US economy may slip into a recession within the year, though this could be a brief one given its resilience over the past few years.

For her part, Sameer Saman of the Wells Fargo Investment Institute says that market watchers need to be on guard for potential opportunities in 2023 despite pessimistic forecasts. Nevertheless, the reopening of China poses complications to the Fed’s job of putting a tight lid on inflation, and related developments are what should be focused on throughout the first half of the year.

Are We Looking at Another China Crisis?

Market sentiment grew pessimistic as the lowering of China’s anti-Covid regulations raised concerns that there would be another surge in cases across the globe.

The Italian Health Ministry, for one, has declared that it expects to impose stricter regulations on those traveling from the Chinese mainland, especially if a new strain of the virus emerges. This decision was prompted by two recent flights from China wherein nearly half the passengers who disembarked in Milan proved to be Covid-positive.

Later in the week, United States border control stated that airline passengers flying in from China are now required to present a negative Covid-19 test before entering the country.