The global economy is currently experiencing a period of anticipation and caution, with the phenomenon of "slow selling" emerging as a major factor weighing on global markets. Despite the ongoing repercussions of wars and geopolitical tensions, the scene on Wall Street appears relatively stable, while the situation outside the United States reveals mounting pressures that raise fundamental questions about what lies beneath this apparent calm.
Despite the limited decline in the S&P 500 index, global market data, according to reliable economic reports such as Bloomberg, indicates deeper losses in several major economies. Markets in Japan fell by more than 8%, France by about 7.5%, and Germany by nearly 7%.
What is slow selling and how does it work?
These figures reflect a different pattern than what investors are accustomed to seeing during times of crisis. The market is not experiencing a sharp collapse or panic selling like that of the 2008 global financial crisis, but rather what is known as a “slow sell-off.” This term describes a gradual and calm withdrawal from risky assets, such as stocks, without triggering panic, with capital being redirected to safer havens or held in cash.
Historical context and geopolitical tensions
Historically, financial markets have reacted with extreme sensitivity to geopolitical tensions. What we are witnessing today is reminiscent of the oil price shocks of the 1970s, when conflicts led to widespread disruptions in supply chains. The current relative calm in US markets stems from a common investor bet known as the “Trump Put,” the belief that political leaders, such as Donald Trump or successive administrations, will not allow markets to collapse, especially given the sensitivity of fuel prices and their direct impact on electoral sentiment.
But this bet carries a great risk; because what is happening today is not just a normal economic cycle or a routine monetary decision, but rather the result of complex geopolitical developments in the Middle East and Eastern Europe whose paths or ends are difficult to predict.
Expected impact: locally, regionally, and internationally
Internationally, the slowdown in oil sales is draining liquidity from both emerging and developed markets, weakening new investment. Regionally, European markets are severely affected, as evidenced by the decline in the German market, which is suffering from an industrial slowdown due to the energy crisis. Locally, and in the Middle East, the volatility of oil prices plays a dual role; it may support the budgets of exporting countries, but it also raises the cost of imports and increases inflation rates, impacting consumers' purchasing power.
The specter of stagflation and the dilemma of central banks
Markets currently assume the crisis will be short-lived and quickly contained. However, if tensions persist and global oil prices continue to rise, the situation could devolve into what is known as stagflation. This scenario, considered the worst-case economic outcome, combines high inflation with slow or weak economic growth.
In this complex scenario, central banks, such as the US Federal Reserve and the European Central Bank, find themselves facing two equally unpalatable options: either raising interest rates to combat rising inflation, which could stifle economic growth and increase unemployment, or lowering interest rates to support growth, which could lead to runaway inflation.
Despite these serious risks, markets are not resorting to indiscriminate selling. Instead, financial institutions are adopting a more measured strategy of reducing exposure to risky assets, increasing cash liquidity, and gradually reallocating investment portfolios. This cautious approach explains the absence of sharp market crashes so far, despite increasing economic and political pressures worldwide.
