The stock market anxiety sweeping the world – with its center on Wall Street – is connected to President Donald Trump's trade war, powerful public spending cuts, and the increased geopolitical uncertainty, according to Lars Söderfjell.
And the stimulus measures that the Trump administration has promised seem to be coming later, he says.
The abrupt turns in Trump's policy are also a problem in themselves. Söderfjell describes it as stop-and-start politics.
He sends in a lot of uncertainty, both to companies and households. If you're going to make an investment decision and don't know what the rules are, it's very easy to put off the decision. Unfortunately, that's how recessions tend to start.
Tesla falls
According to Söderfjell, the probability of a recession in the US has increased from maybe 10 to 30-40 percent in the forecasts from several heavyweight investment banks. And a recession would in turn make it difficult for the stock market bulls on Wall Street to reach the profits that are priced into today's stock prices.
It's primarily the companies that previously had driven up valuations to unusually high levels that are now falling. The Magnificent 7 companies, with Tesla in the lead, he says.
Ålandsbanken has reduced its exposure to the US this year and shifted its stock positions to companies with lower valuations, where expectations for future profits are not as high.
I feel uncertain about what this is. But so far, we see it more as a reaction to what is called "The Trump Bump" (strong price increases) after the presidential election in November – that it's being reset, says Söderfjell.
The main scenario is that we have a volatile market ahead, but you shouldn't rule out that it becomes a larger downturn, he adds.
Of course, it spreads
Other stock exchanges around the world – such as the Stockholm Stock Exchange – may, according to Söderfjell, have difficulty resisting when Wall Street falls.
But there is more potential in the Nordic region and Europe. The valuations and expectations for profit growth are not at all as strained, he says.
The enormous German financial policy investments expected – in the form of investments in defense and infrastructure – can stimulate.
But I don't think we can resist a recession in the US. The US is maybe 22-23 percent of the world economy. It would of course spread here as well.
The stock market downturn on Wall Street on Monday gained momentum since recession anxiety spread on the market after US President Donald Trump signaled over the weekend that he doesn't care so much about the stock market reaction to his policy.
"What I have to do is build a strong country. Then you can't stare at the stock market," Trump said in an interview with TV channel Fox News on Sunday.
The broad index on Wall Street, the S&P500 index, fell 2.7 percent on Monday. This gives a decline of over 7 percent since Donald Trump took office on January 20.
Among the hardest hit in the downturns is Elon Musk's electric car manufacturer Tesla. The Tesla stock plummeted 15.4 percent on Monday and has since the Trump administration took office – with Musk in a key role regarding public spending cuts – lost 49 percent of its stock value.
