Saam Rule recession signal is on! What investment strategies should I look out for?
The number of new US non-farm payrolls for July announced on Friday fell short of expectations,The unemployment rate rose to 4.3%I did it. This exceeds the long-term unemployment rate of 4.2%, which is the latest forecast of the Federal Reserve (Fed), and the “Sam Rule” was invoked,It ignited concerns about a recession。
The so-called “Therm Rule” is”A recession is suggested when the 3-month moving average of the unemployment rate rises 0.5% from the lowest value in the past 12 monthsIt's called”.
The so-called “Therm Rule” is”A recession is suggested when the 3-month moving average of the unemployment rate rises 0.5% from the lowest value in the past 12 monthsIt's called”.
Looking at the recent situation in the United States, the unemployment rate in May was 3.96%, the unemployment rate in June was 4.05%, and the unemployment rate in July rose to 4.3%, which is already 0.5% above the low, and the Sam Rule was invoked, which strictly means that the economy has entered a recession.
According to past data, once the “thumb rule,” an indicator of recession, is activated, it is like completely opening the magic box of recession. Since Federal Reserve (Fed) economist Sam proposed the “Therm Rule,”The accuracy of predicting a recession of this indicator is 100%Nonetheless, the “Sam Rule” has been proven in all 11 recessions that occurred in the United States since 1950.
The unemployment rate unexpectedly rose by 0.2%, mainly because the number of furloughed workers increased by 0.24 million 9,000 in the aftermath of Hurricane Beryl. Analysts expected the unemployment rate to drop to around 4.1% in August.
However, after the announcement of the number of people employed in the non-farm sector,Wall Street investment banks suddenly changed their interest rate cut observationsI did it.
Both City and J.P. Morgan teams anticipate that the Fed will cut interest rates by 50 points each in September and November, and 25 points each from the December meeting.
The Goldman Sachs team believes that a 50-point rate cut in September is “possible” if August data is similarly weak.
Meanwhile, Bank of America hastened the start of the interest rate cut cycle from December to September.
According to the Fed Watch tool,As for the median forecast, “50 bps+50 bps+25 bps” is most likely to cut interest ratesI'm watching it as a path.
According to past data, once the “thumb rule,” an indicator of recession, is activated, it is like completely opening the magic box of recession. Since Federal Reserve (Fed) economist Sam proposed the “Therm Rule,”The accuracy of predicting a recession of this indicator is 100%Nonetheless, the “Sam Rule” has been proven in all 11 recessions that occurred in the United States since 1950.
The unemployment rate unexpectedly rose by 0.2%, mainly because the number of furloughed workers increased by 0.24 million 9,000 in the aftermath of Hurricane Beryl. Analysts expected the unemployment rate to drop to around 4.1% in August.
However, after the announcement of the number of people employed in the non-farm sector,Wall Street investment banks suddenly changed their interest rate cut observationsI did it.
Both City and J.P. Morgan teams anticipate that the Fed will cut interest rates by 50 points each in September and November, and 25 points each from the December meeting.
The Goldman Sachs team believes that a 50-point rate cut in September is “possible” if August data is similarly weak.
Meanwhile, Bank of America hastened the start of the interest rate cut cycle from December to September.
According to the Fed Watch tool,As for the median forecast, “50 bps+50 bps+25 bps” is most likely to cut interest ratesI'm watching it as a path.
In the current environment, it might be wise to invest in safe haven ETFs. These ETFs usually invest in low-risk assets such as government bonds and defensive stocks, and provide stable returns during periods of high market volatility.
・US Treasury ETF
US bonds are on an upward trend because the economic situation that the US is concerned about has strengthened risk aversion movements.
US 10-year bond yield falls below 4% for the first time since February、2-year bond yield hits 14-month lowI did it. Also, the beginning of the Fed's interest rate cut is the best time for trading, and the probability that US bonds will rise is extremely high.
What is a typical ultra-long-term bond ETF $iShares 20+ Year Treasury Bond ETF (TLT.US)$So, they hold US bonds with maturities of 20 years or more. TLT mainly holds US bonds with a maturity of 20 years or more, and these bonds have a long maturity and are very sensitive to interest rate movements.
As you can see from the chart below,Every time the Fed cuts interest rates, TLT tends to outperformThere is.
・Defensive Stock ETF
Since interest rates are expected to fall, so-called “rotation trade” will continue. Defensive ETFs invest in defensive sector stocks such as utilities, consumer goods, healthcare, etc., and are generallyPerformance improves during recessionsI'll do it.
Interest rate reduction cycles are in view, and US bond yields have plummeted, so investors are gathering in stocks with little fluctuation, from public utilities to real estate investment trusts, where dividends are paid.
Allocating defensive stocks is also an effective strategy in highly volatile marketsIt is. Specifically, looking back on the past 18 recessions in the US, industries such as utilities, consumer goods, and healthcare usually showed better performance during periods of mild recession, and the range of declines during the stock market recession was small, and dividends were high.
According to Bloomberg Industry Research, investors last week $Real Estate (LIST20753.US)$with $Utilities (LIST20765.US)$Nearly 1 billion dollars were invested in the sector's exchange-traded funds, but only 0.3 billion dollars were invested in technology ETFs.
・VIX Index/Inverse ETF
Known as the fear index $CBOE Volatility S&P 500 Index (.VIX.US)$continued to soar on Monday, rising 70% to reach the 40 dollar range,It has reached the high level since 2020/10. This indiscriminate sell-off and heightened fear reflects a weak sentiment in the market, and investors are betting that the volatility index can partially hedge against market fluctuations.
Since interest rates are expected to fall, so-called “rotation trade” will continue. Defensive ETFs invest in defensive sector stocks such as utilities, consumer goods, healthcare, etc., and are generallyPerformance improves during recessionsI'll do it.
Interest rate reduction cycles are in view, and US bond yields have plummeted, so investors are gathering in stocks with little fluctuation, from public utilities to real estate investment trusts, where dividends are paid.
Allocating defensive stocks is also an effective strategy in highly volatile marketsIt is. Specifically, looking back on the past 18 recessions in the US, industries such as utilities, consumer goods, and healthcare usually showed better performance during periods of mild recession, and the range of declines during the stock market recession was small, and dividends were high.
According to Bloomberg Industry Research, investors last week $Real Estate (LIST20753.US)$with $Utilities (LIST20765.US)$Nearly 1 billion dollars were invested in the sector's exchange-traded funds, but only 0.3 billion dollars were invested in technology ETFs.
・VIX Index/Inverse ETF
Known as the fear index $CBOE Volatility S&P 500 Index (.VIX.US)$continued to soar on Monday, rising 70% to reach the 40 dollar range,It has reached the high level since 2020/10. This indiscriminate sell-off and heightened fear reflects a weak sentiment in the market, and investors are betting that the volatility index can partially hedge against market fluctuations.
Furthermore, holding an inverse ETF that bets on individual stocks is also useful for portfolio risk hedging.
However, the US service industry PMI announced yesterday rose 0.3 points to 55.1, a high level since 2022/4. It suggests that overall corporate activities have remained steady.
However, prospects have deteriorated among manufacturers. There were many responses concerned about the outlook for demand and the impact of elections on policy.
Source: moomoo
ー MooMoo News Evelyn
This article uses automatic translation for some of its parts
However, the US service industry PMI announced yesterday rose 0.3 points to 55.1, a high level since 2022/4. It suggests that overall corporate activities have remained steady.
However, prospects have deteriorated among manufacturers. There were many responses concerned about the outlook for demand and the impact of elections on policy.
Source: moomoo
ー MooMoo News Evelyn
This article uses automatic translation for some of its parts
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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