As per the survey, some 55% of the investors remain bullish in Q2 2026, slightly below from last quarter’s tally of 56%. Inflation remains the top concern among 50% of those surveyed, followed by concern about geopolitics (20%) and rising energy costs (18%). About two in three investors (63%) expect volatility to rise, six percentage points higher than last quarter.

“Upcoming midterms add to market anxiety. Nearly half (48%) of investors worry midterm elections could affect stock performance. Amid uncertainty, investors stay engaged. Half (50%) of investors have increased the amount of time they devote to their portfolio this quarter—up from 41% last quarter,” the study remarked.

“With geopolitical concerns, policy uncertainty and higher costs, market whiplash is very real, making day-to-day moves feel noisy. But rather than pull back, many investors remain engaged—adjusting to volatility and looking for opportunities in a more complex market backdrop. A healthy dose of volatility is a normal part of market dynamics, and commitment to an investing plan is key,” said Chris Larkin, Managing Director and Head of Trading and Investing, E*TRADE from Morgan Stanley.

“With AI disruption continuing to move the market, more than half of investors (56%) point to information technology as the sector with the greatest potential this quarter. Energy. Amid spiking oil prices, investor interest in energy is unchanged this quarter, holding steady at 49%,” Morgan Stanley Wealth Management commented.

As market risks shift, investors’ interest in health care, known for its relative stability during uncertainty, ticked up 2 percentage points to 35%.

This quarterly retail investor pulse survey was conducted online from April 1 to April 20 of 2026, among a sample of 940 self-directed investors, investors who fully delegate investment account management to financial professionals, and investors who utilize both the routes.

The post Investors remain bullish despite headwinds, says Morgan Stanley appeared first on International Finance.

The higher tariffs on imports have already kicked in, raising the average US import duty to its highest in a century, while creating unrest among major trade partners such as Switzerland, Brazil, and India. The tariffs now range from 10% to 50%. Trump’s rates will now face the challenge of shrinking US trade deficits without causing massive disruptions to global supply chains or provoking higher inflation, while dealing with retaliation from trading partners.

Then arrived the latest US job growth data, which showed a trend much slower than expected in July. The data was revised sharply lower, indicating the labour market could be showing signs of stalling. Nonfarm payrolls increased by 73,000 jobs in July, after rising by a downwardly revised 14,000 in June, according to the Labour Department. This led to a furious Trump tapping an economist from a conservative think tank for the crucial role of BLS boss, with the responsibility of publishing employment figures—figures that will parrot (as per detractors) Trump’s stance on the American economy, which believes it is booming and requires “HONEST and ACCURATE NUMBERS.”

Talking about inflation, the ratio held steady in July despite import tariffs, bolstering bets that the Federal Reserve may cut interest rates in the coming days. Consumer prices rose 2.7% in the year to July, the same pace as in June, as lower energy costs offset price rises for items such as coffee, tomatoes, and tools. Analysts now see the relatively contained pace of price rises strengthening the Fed’s case for lowering borrowing costs to support the economy as job growth slows. However, an underlying inflation measure—which is seen as a better indicator of economic trends—showed prices rising at the fastest pace since February.

So, amid a volatile situation (poor job data and moderate inflation), Wall Street is holding its own. However, the question is, how long can this resilience last?

Finding The Optimism

In the opinion of Christopher Smart, managing partner of the Arbroath Group and a former economic policy advisor in the Obama Administration, “Lately, companies have been delivering good news on the earnings front. An unusually large number of firms beat their second-quarter profit forecasts, prompting analysts to nudge up estimates for the months ahead.

This wave of strong results, combined with excitement over artificial intelligence, has fuelled investor optimism. Money has poured into tech giants poised to lead an ‘AI revolution,’ helping drive the market’s price-to-earnings ratio to about 22 times forward earnings. Bulls argue that such rich valuations are justified by the promise of AI-driven future growth.”

Recent economic trends have largely vindicated investor confidence. US GDP has grown at an average of 2.8% over the past five years, thanks to a strong post-COVID rebound. The economy has kept on powering (sometimes through the sharpest interest rate increases in 40 years) as the Trump administration keeps on fundamentally redesigning the global trading order. Generous checks and rock-bottom interest rates following the pandemic may explain at least some of this remarkable performance.

Yet Trump’s economic policies send mixed signals. His major tax overhaul slashed corporate taxes and boosted defence spending, injecting stimulus but adding roughly USD 3.4 trillion to federal deficits. The White House insists these moves will turbocharge growth, but many economists warn any fiscal boost will be outweighed by the drag from tariffs. The International Monetary Fund (IMF) expects US growth to dip below 2% in the next two years, even as global growth nears 3.1%.

“Still, stocks are all about future expectations, and none of this history reveals much about the impact of the Trump Administration’s dramatic policy departures. The ‘One Big Beautiful Bill’ locked in lower corporate tax rates and delivered a massive boost to defence spending, adding some USD 3.4 trillion to the deficit over the next decade, according to the Congressional Budget Office. The administration promises, however, that together with a wave of deregulation, growth rates will be more than 1% higher over the next four years,” noted Smart.

Tariffs: A Stealth Tax On Americans

“Most independent economists expect more headwinds from tariffs than tailwinds from tax cuts and deregulation. The International Monetary Fund recently raised global growth forecasts to 3.1% this year—but doesn’t expect more than 2% in the US in 2025 or 2026,” remarked Smart.

Trump’s tariffs have effectively become a hidden tax on American businesses and consumers. The average American tariff on imports has jumped from around 2.5% before the trade war to nearly 20% with the latest duties. Not every cost will jump that much; many companies will absorb some of the increase, but consumers will still feel the pinch. The Treasury expects to collect roughly USD 300 billion in tariff duties, a bill ultimately paid through higher prices.

“Worse than this one-off blow, however, is the lingering uncertainty for investors and corporate strategists. Even as Trump’s tariffs went into effect on August 7, crucial details of the deals he has announced remain unknown,” Smart opined.

Even more unsettling is the uncertainty around Trump’s trade manoeuvres. As one round of tariffs took effect this August, with key details still unclear, Trump was already vowing new levies on products like pharmaceuticals and semiconductors. He has even wielded tariffs as leverage in unrelated disputes (including geopolitics), deepening the unpredictability.

Market Confidence Faces A Major Test

So far, Wall Street has mostly shrugged off the tariff chaos. Trump’s surprise “Liberation Day” tariff announcement in April sent stocks, bonds, and the dollar tumbling, but the panic proved short-lived. Markets quickly rebounded as investors bet the economy could weather higher costs or that the Federal Reserve would cut rates if needed.

Yet that confidence faces a test in the coming months. By autumn, American shoppers will start feeling the full impact of tariffs as higher-cost imported goods hit store shelves. This could reignite inflation just as the Fed hoped to ease monetary policy, potentially forcing a delay in rate cuts.

Meanwhile, pricier goods could erode household purchasing power and dampen spending, raising the risk of a downturn. In a worst-case scenario, a mix of rising prices and slowing growth, which is a bout of 1970s-style “stagflation,” could finally bring the stock market’s remarkable run to a halt.

The post IF Insights: Test for Wall Street as Trump’s ‘tariff chaos’ becomes new normal appeared first on International Finance.

Morgan Stanley joined Citigroup, Bank of America, Wells Fargo, and Goldman Sachs, which exited the alliance earlier in 2024. This move raises questions about global climate commitments and the implications of US political shifts on such initiatives.

While many of these banks insist that their commitment to net-zero goals remains intact, the coordinated withdrawals suggest a deeper tension between corporate climate action and escalating Republican criticism of environmental, social, and governance (ESG) policies, often dismissed by the GOP as “woke investing.”

The “Woke” Investing Debate

Two key Republican figures, including Rep. Jim Jordan, have been outspoken against climate finance equity coalitions such as the NZBA. Jordan, who previously led the House Judiciary Committee, has accused such efforts of being a “climate cartel” attempting to ‘conspire’ against the American economy.

Conservative opponents of ESG, in particular, have begun terming such measures as “woke investing” to counter free-market economy principles. Jordan’s struggle to defend Republican internationalism has become increasingly difficult.

Jordan has become more associated with Climate Action 100+ than with his arguments against the withdrawal of these banks. The “market stuffing internationalism” that the GOP appeared calm about throughout much of 2020-2021 was beginning to unravel. Recently, particularly according to Jordan’s rhetoric, more and more international elites are leaving the United States.

Donald Trump’s administration is likely to strengthen the belief in eliminating all ESG initiatives and may target the NZBA like the US withdrawal from the Paris Climate Accord in 2017. This would likely weaken the alliance’s influence, as Wall Street continues to hold significant power within global finance.

Banks’ Rationale For Exiting The NZBA

The banks that have left the NZBA maintain that they remain committed to their climate goals. For example, Morgan Stanley stated, “Our commitment to net-zero is unchanged as ever,” while Citigroup emphasised their progress toward climate goals.

These statements suggest a complex picture—though these banks are withdrawing from the NZBA, they are not pulling out of their climate commitments.

The NZBA, initiated in 2021 as part of the Glasgow Financial Alliance for Net Zero, facilitated banks in their efforts to sign up for net-zero emissions by a specific date, as outlined in the Paris Agreement.

However, increasing political pressure, particularly from Republican lawmakers, has made it more challenging for banks to remain active members.

Recently, the alliance amended its terms by removing the requirement for members to comply with the goals of the Paris Agreement. This change was likely an effort to maintain participation in a rapidly changing political climate, but it may have come too late for many American banks.

The Shadow Of Trump 2.0

The future of the NZBA seems to be shadowed by the ideologies of Donald Trump’s administration. We all remember their disheartening approach to international climate change during his presidency.

Since the return of Donald Trump to the White House, the NZBA is facing a risk of being dismantled, undoing the strides made by financial institutions over the years toward climate integration.

However, that is not the sole concern. While business integration is crucial for the success of the NZBA, it is also important to note that all members join voluntarily. This raises red flags, as political interference or changes remain a constant threat.

Critics of the agreement, who accuse it of being an example of global elites trying to impose their will on everyone, may undermine its credibility and, by extension, the influence Wall Street still holds.

For banks like Citigroup and Bank of America, leaving the NZBA while maintaining other climate affiliations reflects a calculated effort to navigate polarised political waters. Both institutions remain part of the broader Glasgow Financial Alliance for Net Zero, which includes coalitions of asset managers and insurers. This selective participation allows banks to signal their ongoing climate commitment without inciting the ire of Republican lawmakers.

However, the broader implications for global climate action are troubling. The NZBA was designed to unify financial institutions around common goals, leveraging their collective influence to accelerate decarbonisation. Its fragmentation could slow progress and embolden other critics of ESG initiatives worldwide.

The Road Ahead For NZBA

With several high-profile US banks exiting, the NZBA faces an uncertain future. While some members, particularly those outside the United States, may continue to champion its goals, the alliance’s ability to drive meaningful change will likely be diminished without Wall Street’s participation. Efforts to loosen participation requirements may keep remaining members on board, but they also risk diluting the NZBA’s impact.

With Donald Trump in charge now, the US government’s stance on climate finance could shift dramatically, potentially undermining not only the NZBA but also other international climate initiatives. For now, the alliance’s survival hinges on its ability to adapt to a rapidly changing political landscape and retain the support of its remaining members.

NZBA’s future—and that of global climate finance—hangs in the balance. Whether the alliance can weather this storm remains to be seen, but its struggles offer a stark reminder of the fragile nature of voluntary global initiatives in the face of domestic political shifts.

The post IF Insights: Why are Wall Street biggies retreating from NZBA? appeared first on International Finance.

The memo states that Morgan Stanley will separate a team from the rest of the region that is concentrated on onshore and offshore China investments.

According to the memo, the company has designated Jun Xu, who oversees its investment funds denominated in yuan, as the head of all private equity investments in China.

Since joining Private Equity Asia in 2008, Xu, who joined Morgan Stanley in 2005, has spearheaded the growth of the company’s yuan-denominated private equity business in China.

According to the memo from Morgan Stanley, Nirav Mehta and Arjun Saigal, who are currently co-heads of India PE, will assume the role of co-heads of PEA ex-China.

PEA ex-China will continue to invest throughout the region with India as its primary focus. A firm representative attested to the memo’s contents.

Chou will be retiring after working for the Wall Street Bank’s private equity division for 35 years, including time spent in the New York office in the late 1980s.

In the 1990s, he moved to Asia to start the company. In addition to leading the establishment of the China Yuan and Thai Funds, he was a member of the firm’s Asia-Pacific Executive Committee and is a pivotal figure in its five regional private equity funds.

According to the memo, Andrew Hawkyard, who spent 24 years working for the PE Asia unit, and most recently held the position of chief investment officer, will also be retiring.

According to public disclosures, Morgan Stanley PEA has raised five private equity funds totalling over USD 4 billion for the region since 1999. PEA raised the largest fund to date, USD 1.7 billion, when the fourth Asia fund closed in 2014, according to the bank’s disclosures.

In other news, Morgan Stanley is looking to allow its 15,000 brokers to recommend bitcoin (BTC) exchange-traded funds (ETF) to their customers, according to a report from AdvisorHub.

The Wall Street giant has already opened up Bitcoin ETF purchases after they got the regulatory approval in early 2024. However, the bank is now looking to let its brokers pitch bitcoin ETFs directly to its customers. The move will see customers reaping the benefits of investing in the oldest cryptocurrency without direct exposure.

“We’re going to make sure that we’re very careful about it…we are going to make sure everybody has access to it. We just want to do it in a controlled way,” AdvisorHub reported, citing a Morgan Stanley executive.

The Securities and Exchange Commission (SEC) approved 11 spot bitcoin ETFs in January 2024. The firms that got the approval include investment behemoths BlackRock (BK), Fidelity, Invesco (IVZ) and others.

“The approval brought massive inflows into the funds and, subsequently, bitcoin. However, the inflows have been dwindling for some time, with BlackRock registering zero daily inflow for its ETF for the first time,” Farside Investors stated.

The post Asia Private Equity & Bitcoin ETFs: Morgan Stanley’s focus amid leadership shift appeared first on International Finance.

As per the media reports, the job cuts will affect thousands of staff.

“Preparations for Monday’s (November 20, 2023) announcements were communicated verbally in meetings, according to a source familiar with the situation who was not authorised to speak publicly. Some staff may be able to apply for other roles at the bank,” commented Reuters, which reported extensively on the issue.

In October, Citi announced the biggest organisational overhaul in decades, where it decided to cut management layers from thirteen to eight. In the two top tiers of its leadership ranks, Citigroup has reduced 15% of the functional roles, apart from eliminating 60 committees.

Support staff in compliance and risk management, and technology staff working on overlapping functions are at risk of being laid off, Reuters mentioned.

In September 2023, Citigroup CEO Jane Fraser, while announcing the corporate overhaul, stated, “We will be saying goodbye to some very talented and hard-working colleagues.”

Fraser’s reorganization efforts have been known in the Citigroup’s inner circles as “Project Bora Bora”.

Fraser, off late, has been facing mounting pressure to fix Citigroup. The American multinational investment major has been an under performer in the financial market, compared to its rivals.

After Fraser taking over in early 2021, Citi’s stocks have been trading at a price-to-tangible book value ratio of 0.49, less than half the average of its United States peers and one-third the valuation of top performers including JPMorgan Chase.

“The only thing she can do at this point is a really substantial headcount reduction. She needs to do something big, and I think there’s a good chance it’ll be bigger and more painful for Citi employees than they expect,” remarked James Shanahan, an Edward Jones analyst, while interacting with the CNBC.

The “Project Bora Bora” will be one of Wall Street’s deepest rounds of layoffs in years.

Since the retirement of her predecessor Mike Corbat, Citigroup’s expenses and headcount have ballooned under Fraser. In fact, amid the other American banks downsizing their staffers, Citigroup’s staff levels, by October 2023, remained at 240,000. The venture currently has the biggest banking workforce in the United States, apart from the larger and profitable JPMorgan.

The impacts of Fraser’s plan will come in January 2023 along with Citi’s fourth-quarter earnings.

Fraser Trying Her Best

Citigroup, United States’ third-largest bank by assets, has been plagued with the decades of stock under performance and missed financial targets. To address these, Fraser is now taking steps analysts have long batted for.

She has pledged to boost Citigroup’s returns to at least 11% in the coming years, which, upon the realisation, will help the bank’s stocks to recover in the Wall Street. As per the analysts, Citigroup needs to increase revenue, use its balance sheet more efficiently and cut costs.

Fraser put Titi Cole, Citigroup’s head of legacy franchises, in charge of the reorganization, as per the reports. Cole joined Citigroup in 2020 and is a veteran in the American banking field, as she had successfully served financial organisations like Wells Fargo and Bank of America.

While on boarding Cole’s expertise in helping out an organisation to address their expense and headcount- related problems, Fraser has also sought the support of Boston Consulting Group, to map out Citi’s organization charts, tracking key performance metrics and making recommendations.

The post ‘Project Bora Bora’ starts as Citigroup undertakes its largest overhaul appeared first on International Finance.

US financial regulators have rolled out emergency measures to arrest the aftereffects of the crisis. The bank depositors will now get access to their money. Other banks will also be able to borrow from the Federal Reserve for 2024, as long as the loans are matched by safe government securities.

US Treasury chief and veteran economist Janet Yellen, however, decided not to compare the situation with the 2008 financial crisis, when the collapse of large banks threatened to bring down the global financial system.

Understanding The Gravity Of The Crisis

Silicon Valley Bank had assets valued at USD 212 billion and these were primarily lent to tech start-ups.

The bank has been placed under the Federal Deposit Insurance Corporation (FDIC) control, with the latter guaranteeing deposits of up to USD 250,000 for the affected parties.

Silicon Valley Bank’s woes have also resulted in the downfall of the values of other US regional financial institutions. New York-based Signature Bank has been shut down by the FDIC. The regulatory body has also taken control over the bank’s USD 110.36 billion worth of assets and USD 88.59 deposit storage (as per December 2022 stats).

First Republic Bank, Western Alliance and PacWest too have been affected by the crisis.

In the United Kingdom, HSBC will take over SVB’s operations in the country. This will override the Bank of England’s initial decision to place the entity into insolvency, apart from protecting the finances of the bank’s 3,500 customers, including hundreds of tech start-ups.

Crypto company Ripple Labs had “business exposure” to Silicon Valley Bank but remains in a strong financial position, clarified CEO Brad Garlinghouse. Ripple, currently engaged in a lawsuit with the United States Securities and Exchange Commission (SEC) over the status of the cryptocurrency XRP, had reportedly stored some of its cash reserves at the Silicon Valley Bank.

What Went Wrong For SVB?

As the world went into COVID lockdowns in 2020 and 2021, remote working became a part of the mainstream economy. This resulted in the rise in the fortunes of tech start-ups, as companies bet big on technology to keep their operations going amid business disruptions.

The tech companies used Silicon Valley Bank for payroll and other monetary services and the bank received an influx of deposits. SVB used the investors’ money in US government bonds, including those supported by mortgages. The prices of these bonds generally go down when the Federal Reserve hikes interest rates. As the Joe Biden government started its monetary policy tightening in 2022 beginning, it resulted in SVB’s bond portfolios undergoing value losses.

The only feasible option for the bank would have been to hold onto these bonds till their maturity stage, in order to get the capital back.

As the tech sector went into a financial bloodbath in 2022, SVB’s customers reportedly started drawing on their deposits. The bank sold some of its bonds at massive losses.

On March 8, 2023, it announced a USD 1.75 billion round of capital raising, while informing its investors about the need to ‘plug a hole’ caused by the sale of its loss-making bond portfolio.

However, aware of SVB’s mess, its customers started withdrawing money en masse, which was reportedly stored in larger accounts.

On March 10, the collapse finally happened. It is now the largest bank failure in the United States since the 2008 global financial crisis.

Revisiting The 2008 Mess

In 2007, global financial markets started showing signs of the negative fallouts of the cheap credit binge. Not only did two Bear Stearns hedge funds collapse, but BNP Paribas also warned investors that the latter might not be able to withdraw money from the bank’s funds. British bank Northern Rock reportedly mulled emergency funding from the Bank of England.

However, only a few investors could anticipate the onset of the worst crisis in nearly eight decades, which brought Wall Street’s giants, triggered the Great Recession and cost people their jobs, savings and homes.

The 2008 financial crisis began with cheap credit distribution and relaxed lending standards, along with years of low interest rates, fuelling the creation of a housing bubble. As it burst, banks were left holding trillions of dollars of worthless investments in subprime mortgages.

The Federal Reserve lowered its rates from 6.5% (in May 2000) to 1% (in June 2003), in order to boost the US economy by making money easily accessible to businesses and consumers.

The move resulted in an upward spiral in home prices. Subprime borrowers, those with poor/no credit history, were also able to buy homes.

The lenders then sold these loans on to Wall Street banks, which, in turn, packaged these entities into low-risk financial instruments such as mortgage-backed securities and collateralized debt obligations (CDOs). The whole chain created a big secondary market for originating and distributing subprime loans.

The US Securities and Exchange Commission (SEC) in October 2004 relaxed the net capital requirements for Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley, thus freeing the latter to leverage their initial investments by up to 30/40 times.

Eventually, interest rates rose and homeownership reached a saturation point. In 2006, the Fed rate was revised at 5.25% and it remained as it is until August 2007. By 2004, US homeownership peaked at 69.2% and by 2006, home prices started going down. The US homeowners couldn’t sell their properties, as they owed a high amount of money to their lenders. Subprime borrowers were stuck with mortgages beyond their payment capacities.

In 2007, subprime lenders went into a bankruptcy spree. Bear Stearns stopped redemptions in two of its hedge funds, prompting banking giant Merrill Lynch to seize USD 800 million from the funds. Northern Rock had to approach the Bank of England for emergency funding due to a liquidity problem. In October 2007, Swiss bank UBS announced losses worth USD 3.4 billion from subprime-related investments.

By 2008, the United States and world economies entered the recession phase, and financial institutions’ got surrounded by liquidity struggles. Northern Rock got nationalised. Bear Stearns collapsed and was taken over by JPMorgan Chase. IndyMac Bank too failed. Two of the United States’ biggest home loan lenders Fannie Mae and Freddie Mac, were seized by the government. The crisis reached its zenith with the downfall of Lehman Brothers in 2008 September.

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Many of Wall Street’s experienced investors are plagued by recollections of the dot-com crisis, and this year’s stock market collapse is giving them considerable déjà vu. Since 2022, the S&P 500 has decreased by 19%, and the tech-heavy Nasdaq has fared even worse, falling more than 28%. However, historical tendencies suggest that the stock market collapse may still be only 50%. For example, the Nasdaq-100 plummeted 78% between March 2000 and October 2002 as once-popular, but now primarily unsuccessful IT firms went out of business.

The dot-com crisis destroyed several tech sector darlings that had dominated the 1990s. Today, cryptocurrencies have an astonishingly similar trajectory in an industry that didn’t exist decades ago. In perhaps one of the worst sell-offs in the history of the developing market, the crypto market has lost around USD 1 trillion so far in 2022. And, of course, a brief but traumatic recession followed the deflating dot-com bubble. So is that the current direction of the markets?

A new period of growth over profitability

Markets and investors of the dot-com era were famously described as “irrationally euphoric” by former Fed Chair Alan Greenspan, and this dynamic was ever present during the 2010s. Both periods characterize Wall Street’s emphasis on expansion over profitability and the aggressive rise of retail investing. The best-performing stocks in both economic developments belonged to businesses with a growth-oriented strategy.

Take Priceline as an illustration. After its creation, the online travel firm experienced sudden success in 1999 and became public. After spending millions on advertising featuring William Shatner from Star Trek, the company soon piled up USD 142 million in losses in its first few quarters of operation, but investors didn’t seem to care.

All they needed was a share of the explosive growth from the business that would eliminate travel agencies. As a result, shares rose to nearly USD 1000 from the USD 96 IPO price (adjusted for a six-to-one reverse stock split), but as the market turned, the stock dropped 99% to a low of about USD 6.60 by October 2002.

Consider Peloton as a modern-day analogy. A work-from-home favourite during the COVID pandemic, the exercise bike manufacturer saw a 600% increase in stock value between March and December 2020 even though it continued to experience losses. But, of course, the stock subsequently collapsed, with shares dropping more than 90% from its peak as investors questioned whether the company that makes exercise bikes is worth close to USD 50 billion (its peak market cap).

According to George Ball, Chairman of Sanders Morris Harris, a Houston-based investment company, it’s evident that investors have been prepared to pay up for market share increases and projected future profitability, even in company models that haven’t yet demonstrated their ability to generate a profit.

“There was a strong, essentially unthinking assumption that a subset of investments would go up in price forever in the dot-com period, and in the current market run-up and decline this year. The justification, if there was any, relied on a very high rate of growth going beyond any reasonable assumptions of the bounds of scale, had no real basis in metrics, and had no real basis in logic,” he said. According to Ball, the “poisons” that ultimately caused a crash back then are the same as what the markets are currently going through.

What’s happening now?

Nobel laureate Robert Shiller defined a speculative bubble in irrational exuberance as “a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, amplifying stories that might justify the price increases and bringing in a larger and larger class of investors who, despite doubts about an investment’s real value, are drawn to it partly.”

Tech observers are used to this craziness. COVID wreaked economic havoc in 2020 and 2021, but the IT industry was unaffected. Amid the lockdown, tech CEOs and owners got richer. Their enterprises expanded faster and were more profitable than others. Apple spent USD 90 billion buying its shares, nearly Kenya’s GDP. Amazon spent USD 50 billion in 2021 on warehouses, staffers, electric vehicles, cloud computing centres, etc. And then… The Nasdaq (heavily influenced by tech businesses) reached 16,057, then plunged on November 19, 2021. Currently, it’s 12,369. So, was this a “market correction” or a sign that this speculative bubble had burst?

According to quarterly numbers revealed by IT companies, the bubble has popped. Luke Gbedemah and Sebastian Hervas-Jones of Tortoise Media said the data shows a difference between companies that can “sustain an economic crisis” and those that may face existential decline. In addition, for the first time in the industry’s history, the companies’ combined real revenue growth rate was negative, and actual sales overall were lower than the year before.

Alphabet’s revenues grew 13%, but earnings plummeted 14%. Apple’s revenues rose by a hair, but earnings fell by 10%. Amazon’s sales increased 7%, but profits plunged 60.6%. Facebook had a bad quarter, with marginally lower revenues and 36% lower earnings. Microsoft’s revenues were up nearly a fifth, while profits were only up 2%.

In interpreting these numbers, the usual caveats apply: these are just one quarter’s results (though Meta has had two terrible ones); global supply chain problems and pulling out of Russia may have impacted Apple; and Amazon’s results may reflect its massive investment in Rivian, the electric vehicle manufacturer from which it has ordered 100,000 vehicles.

Investors formerly praised these companies for being different from regular, uninteresting corporations. Instead, these gigantic money-printing machines are headed into unknown territory, where they will push margins, expenses and privileges trimmed, workers fired, and efficiency found. Alphabet’s CEO urges employees to be “more entrepreneurial, working with greater urgency, sharper concentration, and more appetite than on sunnier days.” Similar sanctimonious exhortations are likely coming from other heavyweights.

Firstly, the era of “tech exceptionalism” – when investors and speculators praised companies and their supporters for being different from typical, boring corporations – may be ending. It is because these corporations are now no different from BT or Unilever.

Secondly, Microsoft’s case was misjudged because it blew the smartphone opportunity. Instead, it provided organizational computing infrastructure for organizations worldwide. For example, the NHS has 750,000 PCs running Microsoft OS and apps. Ditto for the UK government, massive firms, university administrations, and western SMEs. Microsoft’s cloud computing business is booming; though not glamorous or thrilling, it is a stable business.

Dot-com 2.0: tech stocks and cryptocurrencies

Any business that added “.com” to its name appeared to achieve success practically right away in the years leading up to the bubble, and recently it has been the same with “crypto” and “Defi.” These innovative technologies have attracted an influx of investors. Both then and now, the reasoning went something like this:

“Something is expanding quickly; it will continue to grow very soon.” The bigger fool notion then takes hold, individuals employ leverage, and when they can no longer sustain growth at a high level, the power is revealed, and the crash occurs, according to Ball. That’s the case with tech equities right now, as you’re aware, and it’s also the case with cryptocurrencies. The price drops in finished SPACs were an obvious indicator of this.

People are reluctant to acknowledge it, but psychology has a considerably more significant influence on stock values than the economy or profitability. It is psychology, and the psychology has changed for the worst,” the Chairman of Sanders Morris Harris said, adding that although “no one knows where the tech bubble burst is going to be,” he believes the Nasdaq may “very probably” fall below USD 10,000 in 2022. According to Ball, the best time to invest is probably when psychology and tech companies begin to increase.

Not everyone is anxious about the future of tech stocks

The chief financial strategist of Charles Schwab & Co., Liz Ann Sonders, tweeted that the forward P/E for the S&P 500 Tech sector is “nowhere near” the levels experienced in the period leading up to the dot-com bust. Even the crucial price-to-earnings (PE) ratio known as the Shiller PE ratio, which is cyclically adjusted, didn’t reach dot-com levels during the height of the stock market in late 2021. However, it is still higher than before the Great Financial Crisis.

Macroeconomic differences could cause an intensified recession

While the time leading up to the dot-com bust may now be startlingly similar, they also recall a remark sometimes credited to Mark Twain that may or may not be true: “History doesn’t repeat itself, but it often rhymes.”

In an interview with CNBC, Jeremy Grantham, co-founder and chief investment strategist of the Boston-based asset management company Grantham, Mayo & van Otterloo, stressed the macroeconomic differences between the dot-com period and current markets. He claimed that while the latest decline in tech stocks may be comparable to 2000, the impact on the economy now may be considerably worse.

“I’m worried that there are a few more significant differences from 2000,” he said. One of them is that the 2000 stock market crash only affected US stocks; bonds were excellent, yields were fantastic, housing was affordable, and commodities behaved themselves, according to Grantham, who noted that 2000 “was paradise” compared to today. The renowned investor continued, saying that, in contrast, the bond market recently experienced its “lowest lows in 6,000 years of history.” In addition, the cost of food, metal, and energy is rising, and the housing market is cooling, which might negatively impact the economy.

A Fed-driven downturn

However, experts claim that, unlike in 2000, the latest slump in IT stocks will not be the primary cause of a recession. Instead, the Fed’s efforts to combat the highest inflation in nearly four decades are the primary cause of economic suffering. The Federal Reserve has been increasing interest rates. That might not be good news for Main Street or Wall Street.

The Fed will boost interest rates to combat inflation because it is now running relatively high and is not merely a passing trend. But even though it will be acting appropriately, this is likely what will trigger a recession, Ball continued. The notion that the Fed will probably be blamed by Wall Street if a recession occurs is widely held. Even the former vice-chairman of the Federal Reserve, Randal Quarles, acknowledged that it would be difficult for the government to create a “soft landing” for the American economy, where inflation is controlled, but economic growth is maintained.

“I believe that we are entitled to a recession given the length of time we have experienced high rates of growth, affluence, and GDP gains. A cold shower brings about an understanding of reason and reasoning, and the popping of the bubble will do the same,” Ball stated.

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Elon Musk mentioned his company having “excellent electronic vehicle demand” for the upcoming fourth quarter, amid investors’ concerns over the economic slowdown and high price tags of the Tesla cars affecting the company’s future.

However, Reuters reported about company executives admitting to delivery issues. The fourth-quarter car deliveries are to see some 50% growth in the coming months, while the production capacities will go up by 50%.

Tesla’s shares fell by 4.3% in after-market trading, immediately after the revenue figures came in.

While the electronic vehicle maker is maintaining a fast growth track amid recession, investors are keeping their fingers crossed.

Tesla posted a third-quarter automotive gross margin of 27.9%. In 2021, the figure was at 30.5%. Tesla’s third-quarter revenue count is USD 21.45 billion, while analysts predicted it to reach the USD 21.96 billion mark.

The carmaker also had a negative foreign exchange impact of USD 250 million on its earnings due to the US dollar strengthening against other currencies.

“Raw material cost inflation impacted our profitability along with ramp inefficiencies from the new factories in Berlin and Texas, and the production of its new 4680 batteries,” Elon Musk said.

“Logistics volatility and supply chain bottlenecks remain immediate challenges, although improving,” he added.

Elon Musk said that the new battery production has been gaining rapid traction.

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Volcker became famous four decades ago, when the cost of living in the US was higher than the current 8.6%, as the central banker who was prepared to drive the world’s biggest economy into deep recession to squeeze inflation out of the system.

Now, Jerome Powell, the current chairman of the Federal Reserve, has unearthed his inner Volcker. Powell was adamant last year that the rising US inflation was a temporary phenomenon. He said just last month that a 0.75 point increase in official borrowing costs was not on the table.

Now it appears that a rattled Fed is attempting to catch up. The data indicated in a report on June 12 showed an unexpected 8.6% rise in annual inflation, which surprised Powell and his colleagues.

According to the latest Fed thinking, inflation is at risk of becoming embedded because demand is too high for a supply-side that has been damaged by the COVID pandemic and the Russia-Ukraine war.

According to the Fed, the move which raises the US rate to between 1.50% and 1.75%, is expected to be followed by more rises. Wall Street now expects a 0.75-point increase in borrowing costs next month, followed by a 0.5-point increase in September.

The Fed’s shift in strategy has ramifications for both the United States and the rest of the world. Higher inflation is already having an impact on spending in the United States, as evidenced by a decline in retail sales.

The Fed’s action also puts pressure on other central banks to follow suit, many of which have been taken off guard by the strength and durability of inflation. Higher interest rates will strengthen the dollar, making debt repayment more expensive for countries that have borrowed substantially in US currency. A developing country’s debt crisis has moved a step closer.

Powell is attempting to orchestrate a gentle landing for the US economy by lowering annual inflation rates without causing a recession. However, this may be more difficult than he believes.

A recent report co-authored by former US Treasury Secretary Larry Summers suggested that Powell will need to take steps similar to that taken four decades ago.

“In order to return to 2% core consumer price inflation today, we need nearly the same five percentage points of disinflation that Volcker achieved,” the paper concludes.

The shock treatment administered by Volcker in the early 1980s resulted in official interest rates nudging 20% and the unemployment rate hitting a postwar high of 11%. The impact was particularly brutal on small towns in America’s industrial heartlands, which have never recovered.

Food, gas and shelter costs rise
According to the latest consumer price index (CPI) numbers, the cost of living grew by one percentage point in April. The increase was broad-based, with the indexes for shelter, gasoline, and food contributing the most.

Gas prices have been rising across the United States, with rates approaching USD 5 per gallon, up to USD 1.90 from a year earlier. The energy index increased 4%, while the gasoline index rose 5%, according to the CPI report. Other important component indexes increased as well. In May, the food index jumped by 2%, while the food at home index increased by 1%.

The May month rise was driven by sharp increases in energy costs, which rose 35% from a year earlier, and groceries, which jumped 12% on the year.

Food and energy prices are more volatile than other categories included in the CPI, and the labor department publishes a core prices index that excludes them. It rose 0.6% from April. The news sent stock markets into a tailspin. The S&P 500 and Dow indices fell over 2% and the tech-heavy Nasdaq was down over 4%.

Inflation fears have hurt US President Joe Biden’s poll scores, and his administration has tried to blame rising prices on Russia’s invasion of Ukraine. Food and energy prices have risen as a result of the war in Ukraine and the ongoing disruption to global trade caused by the coronavirus outbreak.

However, there were alarming signals that inflation was spreading. In comparison to a year ago, the cost of housing increased by 6%. Prices for used automobiles and trucks jumped 2% in May from April, bringing the year-to-date increase to 17%.

The annual increase in inflation was more than what the economists had predicted, rising from 8.3% in April. Inflation is now running at a rate last seen in December 1981. The Federal Reserve raised interest rates by 0.5 percentage points last month, the highest increase since 2000, and economists believe the Fed will continue to raise rates at a faster pace.

“What an ugly CPI print. Not only was it higher than expected on almost all fronts, pressures were clearly evident in the stickier parts of the market. The decline in inflation – whenever that finally happens – will be painfully slow. The Fed’s price stability resolve is going to be really tested now. Policy rate hikes will need to be relentlessly aggressive until inflation finally starts to fade, even if the economy is struggling,” Seema Shah, Chief Strategist at Principal Global Investors said.

US unemployment rate steady at 4%
US employment increased more than expected in May, while the unemployment rate held steady at 4%, which is a sign of a tight labor market that could keep the Federal Reserve’s foot on the brake pedal to cool demand.

Nonfarm payrolls increased by 390,000 jobs in May, the Labor Department said in its closely watched employment report. Data for April was revised higher to show payrolls rising by 436,000 jobs instead of 428,000 as previously estimated.

Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs last month. Estimates ranged from as low as 250,000 jobs added to as high as 477,000.

The report also showed solid wage gains last month, sketching a picture of an economy that continues to expand, although at a moderate pace. The Fed is trying to dampen labor demand to tame inflation, without driving the unemployment rate too high. The US central bank’s hawkish monetary posture and the accompanying tightening of financial conditions have left investors fearful of a recession next year.

Economists are split on whether the moderation in the pace of job growth is because of cooling labor demand or worker shortages. They urge investors to focus on the unemployment rate and wage growth to gauge the tightness of the jobs market. There were 11.4 million job openings at the end of April, with nearly two positions for every unemployed person.

Though the cries of a recession are growing louder, most economists believe the economic expansion will persist through next year. They acknowledged that high inflation was eroding consumers’ purchasing power and business investment, but argued that the economy’s fundamentals were strong and that any downturn would likely be mild.

US stock market rallies after increase in interest rate
After the Fed increased the interest rate the US stocks soared on June 16. The S&P 500 rose 54.51 points, or 2%, to 3789.99, snapping a five-day losing streak. The Dow Jones Industrial Average added 303.70 points, or 1%, to 30668.53, and the Nasdaq Composite rose 270.81 points, or 3%, to 11099.15.

The Fed’s move is its latest effort to quell inflation through tighter monetary policy. Investors had largely expected the Fed to raise its short-term benchmark rate by 0.75 percentage point.

Dorian Carrell, a fund manager at Schroders said that ultimately the guidance the Fed gives about the direction of interest rates is more important for markets than the size of the rate increase. Uncertainty about monetary policy has been a key driver of volatility this year, helping send the S&P 500 on Monday into bear-market territory, or a drop of at least 20% from a previous high.

Art Hogan, chief market strategist at National Securities said markets are pricing in a Fed that’s trying to get in front of the curve rather than behind the curve on inflation.

That helped lift stocks heading into Wednesday’s rate decision, he added.

Stocks rose broadly, with 10 of the S&P 500’s 11 sectors ending higher.

Charlie Ripley, Allianz Investment Management said that the Fed’s commitment to fighting the inflation battle more aggressively despite the potential aftermath of raising rates at such a rapid pace.

“Overall, Fed policy rates have been out of sync with the inflation story for some time and the aggressive hikes from the Fed should appease markets for the time being,” he added.

Technology stocks, which have been among the hardest-hit areas of the market this year, were among the biggest gainers. Microsoft, Nvidia, Amazon.com and Netflix each added about 3% or more.

Economically sensitive areas of the market also rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed with the KBW Nasdaq Bank Index up 2%.

Energy stocks slid, marking a relatively rare retreat for the year’s best-performing S&P 500 sector. The S&P 500 energy sector fell about 3%.

Meanwhile, US government bonds rallied after sliding in recent weeks in a selloff that has pushed yields to their highest levels in more than a decade. The yield on 10-year Treasurys slipped to 4% from 5%. Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.

Elsewhere, European stocks and prices on peripheral government bonds in the eurozone jumped after the ECB held an ad hoc meeting Wednesday to discuss turbulence in the region’s bond markets.

The ECB outlined a plan to buy more bonds of weaker eurozone governments under an existing bond-purchase program. It tasked ECB staff with accelerating the design of a new instrument that would narrow differences in borrowing costs across the region, addressing financial imbalances that have long posed a problem to the currency union.

Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management said that they wanted to make sure financing conditions don’t deteriorate too much. He said the meeting signaled that the ECB was ready to cushion markets earlier than investors had expected.

The Stoxx Europe 600 rose 1.4%, led by shares of banks and insurers. Shares of Italian banks, which own a substantial chunk of government bonds, had suffered as the debt fell in price. Intesa Sanpaolo and UniCredit were among the best performers in the European market.

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The billion-dollar buyout is so controversial because Musk declared himself a champion of free speech. A move favored by free speech enthusiasts and extremists and criticized by liberals and establishments. Many excluded from Twitter and mainstream media (the alt-right and other right-wing groups) welcome the move hoping to find a space on the platform. The Left believes that free speech often leads to hate speech, and a certain degree of censorship is crucial to maintaining stability.

Musk’s stand has been clear. The tech-billionaire once said, “Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated.”

Musk has been a vocal critic of the platform, demanding the app “prioritizes societal” imperative of free speech and rolls back content moderation. He joined Twitter in 2009 and has even expressed in a 2017 tweet that he wanted to purchase the platform. Elon has over 84 million followers on his account, with as many fans as there are critics.

Who is Elon Musk?
Elon Musk is a South-African business tycoon who developed X.com, which the company that became Paypal later acquired. He is best known for being the CEO of The Boring Company, Space X, and, most importantly, Tesla. He is also the wealthiest man in the world. Many adore Elon because he peddles dreams like traveling to Mars, driving around in electric sports cars with zero emissions, connecting humanity to machines through chips with Neurolink, etc.

On the other hand, his critics like TechCrunch’s Taylor Hatmaker wrote that Musk generally doesn’t give a damn about the incomprehensible power differential between himself and everyone else. Elon has been skeptical about the vaccine and tweeted that COVID-19 was ‘dumb.’ There are accusations on his companies of racism, poor working conditions, union-busting, and covering up worker accidents.

Why does the tech billionaire want to take over Twitter?
Musk has been trying to exert his influence on Twitter for quite some time now. In April, he bought 9.2% of Twitter shares but backed out of his planned board seat at the last moment and decided to buy the whole company and privatize it. His bid was $43.4 billion, around $54.20 per share for the entire company. He did this right before an interview with TED. On April 15th, the company, in a press release, said they were adopting a limited-duration shareholder rights plan to stop the tech entrepreneur from taking over.

Why has this news rattled Wall Street?
Elon Musk is a respected industrialist and CEO of Tesla, SpaceX, The Boring Company, and Neurolink. But his acquisition of Twitter has shock waves pulsing through Wall Street and social media.

Many believe that Musk is overpaying and Twitter isn’t worth as much as he thinks. Wedbush analyst Dan Ives said that $44 billion is a head-scratcher for a company that he thinks can’t be worth more than $30 or $35 billion. However, he added that if you are the world’s richest person, you can do something like that, and the move has had Twitter investors popping champagne.

Investors are worried about Musk’s attempt to change Twitter’s economic model, as he promised that he would not rely on advertisements for revenue. Simultaneously, activists are afraid of one man having Twitter’s colossal database at his disposal.

The deal is not complete and can still fall through. Musk is pledging shares in Tesla and SpaceX to buy Twitter, and the ongoing market volatility is slashing millions in market cap from big tech. It means that he might not have the resources to purchase twitter if the bear market continues. Musk said he was waiting for some clarity about the global number of fake Twitter accounts and accused Twitter of having a lot of bots (fake users) than the corporation would admit. He called Twitter’s bot numbers ‘very suspicious.’

On May 23rd, Musk tweeted a poop emoji at the Twitter CEO after Agarwal wrote a long thread on bots and the company’s efforts to control them. The next day, he said acquisition cannot progress until Twitter provides “proof of <5%.” Some say this is Elon’s strategy to drive down the agreed $54 per share takeover price as tech stocks, including Twitter, have lost so much value in the last few weeks. Others like Analyst Dan Ives of Wedbush Securities said that Musk has “cold feet” and the “bot issue is a scapegoat to get out of the Twitter deal.”

Elon’s delay in the Twitter acquisition had many investors worried, and Tesla stocks have plunged. The CEO took to Twitter to inform shareholders that the Twitter acquisition took only about 5% of the time and that Tesla is on his mind 24/7.

On May 20th, Musk was caught up in an alleged sex scandal, as he took the time to respond to a Business Insider Report that SpaceX paid a flight attendant $250,000 in severance over a sexual harassment claim against him. Twitter said it remained committed to its original deal with Musk and refrained from commenting on the scandal.

How are Twitter employees taking the news?
Twitter is said to have one of the best work environments, and it is the preferred place for millennial tech employees to work along with Netflix. Twitter’s 7,500-strong workforce is known to be progressive and politically sensitive. They are partly responsible for Trump’s ban on the platform contributing to his downfall in the 2020 elections. Many of them are either ready to leave or to fight their company.

Will the deal be successful?
On May 13, Elon put the $44 billion deal on “temporary hold” till he could ascertain whether bots make up fewer than 5% of the total user base. However, since Twitter has not been able to show Musk any proof or data about the number of fake users, he wrote to Twitter on June 6 that he reserves the right to terminate the deal. He accused Twitter of “resisting and thwarting” his requests for data on bots.

Twitter allegedly refused to provide the sought-after information, and Musk said that the social media giant’s lax testing methods are inadequate and that he was conducting a personal analysis.

The Tesla CEO also remarked that Twitter violated his information rights by withholding data. His legal counsel added that this is a material breach of Twitter’s obligation under the merger agreement. He also said Musk was entitled to withdraw from the transaction and cancel the merger agreement.

The SpaceX CEO sent the letter a week after Twitter claimed the HSR Act waiting period for the platform’s acquisition was over. The Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, demands that parties report large transactions to the US Department of Justice Antitrust Division and the Federal Trade Commission for review. Musk obtained funds by raising $13 billion through loans against Twitter and the rest through equity financing.

General Ken Paxton, Texas Attorney, launched a probe on Twitter bots after Musk’s allegations. His office said in a statement that the Attorney issued a Civil Investigative Demand (CID) to investigate whether Twitter’s reporting on the number of actual users was misleading or deceptive under the Texas Deceptive Trade Practices Act. He has demanded details on 23 items, including comprehensive data on daily and monthly monetizable active users. The Attorney General also requested the stats on the number of inauthentic users present each month from 2017 to date.

It was Donald Trump who endorsed Paxton for the position of Attorney General. Paxton was indicted seven years ago on securities fraud charges but has not stood on trial yet.

A securities law expert, Marc Fagel, said that it was unusual for one state to investigate a national, publicly-traded company in another State as it is usually the province of the SEC.

Fear in Washington
Democrats believe Former President Donald Trump was a threat to Democracy. He was banned permanently from big tech platforms ahead of the US elections. Arguably, his absence on social media contributed to his downfall, and his ban was to stop hate speech and crackdown on extremists.

Elon Musk has a different take on free speech and doesn’t believe in the idea of ‘reasonable restrictions’ on them. The free speech absolutions he has is scaring Democrats and the suits in the White House.

Musk said, “I don’t think it was not correct to ban Donald Trump; that was a mistake because it alienated a large part of the country and did not ultimately result in Donald Trump not having a voice.” Though this has rattled many on the Left, he is not entirely wrong. Donald Trump has made his app and free speech platform called Truth Social, which has promised to deliver an “engaging and censorship-free experience.”

It was trending on the App Store, but Google was not letting the former president list the product on Google Play Store. It has become a sort of echo chamber for the far-right in the US. When asked if he would return to Twitter, he said he would wait 6 hours after Truth Social posts before using any other platform. Some fear Trump’s victorious return due to the Twitter takeover.

Many Democrats like Rep. Alexandria Ocasio-Cortez anticipate an explosion of hate crimes following Musk’s Twitter policies. Sen. Elizabeth Warren called it “dangerous to our democracy.” Republicans like Ted Cruz dubbed it the “biggest development for free speech in decades,” and far-right politicians like Marjorie Taylor-Greene were ecstatic.

The Tesla CEO has polarized America and most of the world. Free speech, as an idea, has always benefitted the minority, whether it be an oppressed minority or an extremist minority.

There are two major camps of thought about the future of Twitter under Musk. One group believes it will be an era of hate speech, and Musk wouldn’t even follow through on his Free Speech promises. Twitter has banned many international activists fighting under authoritarian governments, and it is doubtful to some if Musk would reinstate those accounts.

The other camp believes that this is an end to political manipulation and censorship. That anyone anywhere can speak their mind without the fear of political backlash. They claimed that the era of a “rigged marketplace of ideas” is finally over, and this would attract new users to the platform.

Elon Musk, the enigma, does not belong to any camp. He has put himself in the middle of the political spectrum by labeling himself as “half Democrat and half Republican.” However, when asked about his relationship with the Republican Governor of Texas, Musk said he “prefers to stay out of politics.”

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