Bankrate reposted this
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The stock market's negative reaction to weaker-than-expected economic data, including the July jobs report, has increased focus on the possibility of a recession. The S&P 500 has lost 5% over five sessions but remains up 9% year to date and up 15% over the past year. Declines in the tech-heavy Nasdaq and small stock Russell 2000 have been more pronounced. Monday's decline was the worst on a percentage basis since 2022. To level set, perceived higher recession risk is not the same as near-term certainty about a downturn. As it stands, the Federal Reserve Banks of New York and Atlanta forecast Q3 annualized GDP above 2% after the Q2 rise of 2.8%, above the long-term trend. And, to begin the week, the Institute of Supply Management managers reported improving July activity in the nation's services sector, including rising jobs, new orders, and production measures. Some folks are calling on the Federal Reserve to go into crisis mode and cut interest rates before the scheduled mid-September meeting. From my vantage point, the current situation is a far cry from the depths of the COVID lockdowns, resulting in economic cratering, and the Great Financial Crisis when major financial institutions failed and millions were thrown out of work. The Fed's legal mandate involves stable prices and maximum employment as well as financial stability. A modest (so far) stock market sell-off is not part of that mandate. A bigger question, in my mind, is the future magnitude and trajectory of interest rate cuts by the Fed through year-end and 2025. Could there be more rate cuts than previously thought? Here's more from my Bankrate colleague Alex Gailey: https://lnkd.in/e6kSCJs7
Great post. If the Fed wants to maintain its credibility it can't be swayed by market forces it can't control, like the world's biggest unwinding of a carry trade when the Japanese raised rates. Cutting rates now won't effectively do anything for 6 months. Thats why they are signaling a Sept cut.
EMMANUEL OKONKWO
3mo
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It's a tricky situation with mixed signals. Monitoring the Fed's actions will be key as they navigate economic stability.
Lincoln Tsang
3mo
If you're not market diversified, you're in trouble. If you are market diversified, you're in trouble. But hey, you're still alive and breathing, so there's that.
Mike P.
3mo
Thank you. Good analysis. The key is long term perspective and not short term reactions. The Fed's use of interest rates are more for long term growth and stability of the economy. As pointed out S&P was up 15% over past year so there is bound to be some correction.
Kal Venkataraman
3mo
Should not.
Suzanne Lasky
3mo
Thank you for sharing this perspective. Very helpful for a lay person to get the understanding of the factors at play.
Trey McAtee
3mo
We'll be limit down on the announcement of an intermeeting cut
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3moSo, everyone's freaking out about market drops. What's the deal with that? It's like a rollercoaster—expect ups and downs! A 10% dip happens every couple of years, and a 25% drop? That’s once a decade, folks. It's like rain; it’s going to happen. Markets react to everything—interest rates, oil prices, geopolitical drama. It’s like a never-ending soap opera. Recently, Japan raised interest rates from 0% to 0.25%, and suddenly investors are panic selling to pay back yen loans before the yen gets stronger. It’s predictable! Smart investors? They see these dips as a sale—everything’s cheaper! They’ve saved cash from the bull market and are ready to buy. Meanwhile, others are panicking and selling off like it’s a fire sale. But don't worry; governments will step in to stabilize things if needed. So, relax. The market's fluctuations are part of the game. Just ride it out and maybe even snag a deal in the chaos. It’s like waiting out a storm—the sun will come out eventually.