Central banks across the world have raised borrowing costs, driving up interest rates. The Bank of England’s decision to raise interest rates by 50 basis points, bringing borrowing costs to 5%, was a surprise move and a significant shift for the country, with high inflation and a tight labor market justifying the increase, according to policymakers. Meanwhile, Turkey’s central bank raised interest rates by 650 basis points to 15%, which was less than expected, following the re-election of President Recep Tayyip Erdogan, who last year pressured the bank to slash rates despite soaring inflation. Norway’s central bank raised its core lending rate by half a percentage point, while Switzerland’s policymakers hiked its benchmark rate by a quarter point. The rate increases indicate concerns over inflation and mark the end of a decade-long period of cheap borrowing costs.
As borrowing costs increase worldwide, concerns arise that potential borrowers will face increased difficulty obtaining loans, and if interest rates continue to rise, this could lead to a decline in stock markets. Furthermore, homeowners now have less equity than they did a year ago, according to CoreLogic data. The average equity per borrower slipped 1.9% in the first quarter compared to the same period last year, the first annual decline since 2012. With interest rates increasing and equity declining, the fear is that a downturn is inevitable.
Short sellers are betting more than $1tn against US stocks, including Tesla, Apple, Microsoft, Nvidia, and Amazon, according to S3 Partners. As the S&P 500 has climbed more than 13% this year, the bearish bets suggest a potential market correction.
On a brighter note, Goldman Sachs has named 50 stocks poised to increase profitability faster than the rest of the market, with certain names potentially seeing substantial upside over the next year. Additionally, BMO Capital Markets selected their favourite cheap, fast-growing stocks in the under-the-radar industrials sector, which they said has brimmed with opportunity and has outperformed this month. Here are 16 stocks to watch.
In other news, Warren Buffett has donated about $5bn worth of Berkshire Hathaway shares to the Gates Foundation and other charities, giving away more than half his stockpile.
