Asset Allocation Update: The ‘Everything Bubble’ Is Bursting
- By Bilal Hafeez
- 3 min read
Rarely can we point to one factor driving the performance of all markets. But since the global financial crisis in 2008, that factor is low interest rates. As soon as the Fed and other central banks cut their policy rates to zero and started quantitative easing (QE) in late 2008, it set the stage for one of the largest equity market rallies in history. US stocks rose by almost 400% from late 2008 until the Fed started to hike rates earlier this year (Chart 2). And it was not just equities. Almost every asset market value was inflated – whether bonds, real estate or credit. That is why we call this era the ‘everything bubble’. But the ‘everything bubble’ is clearly bursting.
August was yet another month that demonstrated this. Global equity markets fell 4%, bitcoin fell 16%, US bonds fell 2.5%, and even commodities fell 2.7% (Chart 3). Some markets performed less poorly – EM bonds only fell 0.5%, and EM equities were flat. But the trend is clear, and we see further downside ahead.
Rarely can we point to one factor driving the performance of all markets. But since the global financial crisis in 2008, that factor is low interest rates. As soon as the Fed and other central banks cut their policy rates to zero and started quantitative easing (QE) in late 2008, it set the stage for one of the largest equity market rallies in history. US stocks rose by almost 400% from late 2008 until the Fed started to hike rates earlier this year (Chart 2). And it was not just equities. Almost every asset market value was inflated – whether bonds, real estate or credit. That is why we call this era the ‘everything bubble’. But the ‘everything bubble’ is clearly bursting.
August was yet another month that demonstrated this. Global equity markets fell 4%, bitcoin fell 16%, US bonds fell 2.5%, and even commodities fell 2.7% (Chart 3). Some markets performed less poorly – EM bonds only fell 0.5%, and EM equities were flat. But the trend is clear, and we see further downside ahead.
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