Recession Soon? Where are we now (Summary)
The stock market's been on a roller coaster ride lately, mainly driven by fears of a recession and reactions to the Federal Reserve's recent announcements. Here’s everything you need to know.
Summary:
- Fed's Rate Cut Hints: On July 31st, the S&P 500 had its best day since February, jumping by 1.58%. This came after the Federal Reserve hinted at possible interest rate cuts starting in September. Fed Chairman Jerome Powell mentioned a "reduction in our policy rate could be on the table" which excited the markets.
- Recession Fears: However, the very next day, the market tanked. The S&P 500 fell by 1.37% and the Dow dropped 494 points. Investors started to worry that the Fed might be too late with these rate cuts, especially after a worse-than-expected jobs report.
The 10-1Y and 10-2Y yields are now inverted, but not as inverted as it was before.
Economic Indicators:
- Jobs Report: The July jobs report showed a sharp slowdown in hiring, with only 114,000 jobs added compared to 206,000 in June. Unemployment has ticked up to 4.3%, the highest in nearly three years.
- GDP: Despite these concerns, recent GDP numbers were positive at 2.8%, which is far from recession territory. (but mindful the GDP numbers were inflated by non-
- Interest Rates and Market Impact: There are three Fed meetings left this year - September, November, and December. The market fully expects a rate cut in September, but the debate is whether it will be 0.25% or 0.5%. There’s even talk of more cuts in the following months. Historically, the stock market often reacts negatively initially when the Fed starts cutting rates, but it tends to recover as lower rates boost financial assets in the long run.
- Bond Market Reaction: The bond market is also feeling the volatility. The 10-year yield has dropped rapidly, closing at 3.98% yesterday and plunging to 3.82% overnight.
What’s happening in the real world?
- Consumer Spending: People are cutting back on non-essential purchases. Major retailers and automakers are reporting significant drops in sales, mirroring 2008's financial crisis.
- Tech Sector: Companies like Intel are slashing jobs and canceling dividends. Meanwhile, AI hype is masking deeper issues in the tech industry, with regular consumer spending on tech products plummeting.
The market is extremely sensitive right now, balancing between hopes of economic stimulus through rate cuts and fears of an impending recession. August’s CPI inflation data will likely show a drop, pushing us closer to the Fed's 2.0% target. This could have been anticipated, but the Fed opted to wait for confirmation.
What do you all think? Has the Fed been too slow to act, or are they on the right track? Should they be cutting rates now or holding steady? Drop your thoughts below!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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