The most aggressive cycle of interest rate rises in decades could soon come to a halt. At the same time, we see the sector's ability to lend money to businesses weakening. Central bank surveys show that US and European banks are already tightening lending standards, which in the past has been an indicator of the disappointing performance of equity markets. When funding is tight, companies pay more for loans, hurting profits and share prices.

The coming potential recession, which usually starts in the United States, tends to spill over to the rest of the world and, consequently, to global equities. The U.S. ISM manufacturing index, a leading indicator of economic activity, fell last month to its lowest level since May 2020. This is a sign that a recession is coming relatively soon. Meanwhile, gains in stock markets in 2023 have been dominated by shares of technology companies, a sector that may not be immune to recession. The S&P 500 index rose 7% in the first quarter, in a gain it has held onto since.

Performance of the index S&P 500 during last 5 years. (Source: Investing)