Last week, investors watched as global markets took their latest tumble, an increasingly common event over the past two decades. If you were one of the people wondering what caused the markets to drop this time, you weren’t alone. Market analysts and economists where unable to point to a single catalyst for the market woes. President Donald Trump blamed the US Federal Reserve for raising interest rates too quickly. International Monetary Fund (IMF) managing director Christine Lagarde defended the Fed, placing the blame on the growing trade war between US and China.
Many traders pointed to a third cause, which was that many stocks, especially tech stocks, were over-valued, with many companies borrowing to excess thanks to over-inflated credit ratings. A few others pointed to rising oil prices as a contributing factor. But if there was one commonality between them all, it was fear of the future. Fear and uncertainty.
The impatience of world leaders to see a return to growth is further complicating any attempts at returning to normality. The rise of protectionism threatens to erase the progress we have made over the past decade. Restricting trade will not result in trade growth. That should be so obvious that you don’t need the IMF to explain it to you. If the world wants to return to the glory days of growth and wealth, then everyone needs to stop pointing fingers and work together to lower trade barriers, which could boost growth. It may sound naive, but it was the working economic theory only two short years ago, back when the global equity markets were on a record-setting bull run.