Traders and investors say the ongoing slowdown in US stock prices, driven by pessimism about the economic outlook, is increasing the risk of a recession, which comes earlier than some professional forecasters expected.
Falling equity prices have already contributed to the disappearance of $5 to $8 trillion in household assets this year, and are now being done with a weak corporate outlook. Analysts called one company, Snapchat parent Snap Inc. Revenue and earnings from Snap, cited warnings.
As the main reasons behind Tuesday’s path in technology stocks, the S&P 500 index’s slide near bear-market territory, and a flight to safety in government bonds.
Professional forecasters speak of US recession risks in terms of one to two-year horizons. Economists surveyed The Wall Street Journal put the likelihood of a recession in April at an average of 28% compared to the following year. Meanwhile, a survey of 53 forecasters in May National Association for Business Economics shows that inflation-adjusted US growth is expected to slow to an average of 1.8% year-over-year in the fourth quarter. More than half of the respondents assigned a greater than 25% chance of a recession occurring within the next 12 months.
What may not yet be fully incorporated into the considerations of markets or forecasters is how rapidly deteriorating financial conditions can affect the day-to-day decisions made by companies and spread to the economy. Facebook’s is on the list of companies that have already cut hiring. original meta
Twitter Inc. TWTR,
and Uber Technologies Inc. Uber,
chip maker nvidia nvda,
and Salesforce Inc. crm,
Meanwhile, streaming giant Netflix Inc. nflx,
and PayPal Holdings Inc. PYPL,
Jobs have been cut.
“The impact of financial markets contributed, in many ways, to an overheating economy and rising prices,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management. Asset prices would work the opposite way: what the market is telling people could spiral into a evaporated money effect and a psychological effect.
“Slower growth is almost certainly in the cards and falling asset prices, rising prospects of a recession are happening at the earliest,” he said via phone. It was also a dynamic seen in the 2008 financial crisis, which “stemmed from a confluence of events, but part of the equation had to do with the total evaporation of liquidity in the markets and a massive bear market in equities.”
US data released Tuesday showed new home sales declined in April and businesses expanded at their slowest pace in months. While other recent data suggested the US consumer is still healthy, with retail sales solid last month, optimism was quickly extinguished by a lack of earnings from retailers such as Target Corp.
The US economy shrank 1.4% during the first quarter, following a 6.9% increase in GDP in the last three months of 2021, reaching a contracting record US international trade deficit. The National Bureau of Economic Research defines a recession as a significant decline in activity lasting more than a few months, making it difficult to see when one has begun.
“Previous thinking in the markets was that inflation and the Fed’s fight to end it would be what drove us into a recession,” said Rob Daly, director of fixed income for Glenmead Investment Management in Philadelphia, which specializes in fixed income. Oversees $4.5 billion. properties. “But it is the revaluation in the markets now that could lead us to a recession by slowing growth. Those possibilities are certainly probably increasing every day. ,
Although he sees a US growth slowdown in late 2023 likely a “mild recession”, Daly said, “the fear is that it could quickly creep on our doorstep. I don’t want to look like I’m in a recession.” I am agreeing, but there are certainly a lot of things that can slow down the economy.”
The list of downside risks affecting financial markets and the economy includes: inflation hitting a four-decade high, Federal Reserve interest rates close to hike, Russia’s war in Ukraine, supply-chain disruptions, China of the COVID-19 lockdown, and a resurgence of more US coronavirus cases.
According to Glenmaid’s Daily, earlier this year, investors were grappling with valuation problems as the Fed began raising interest rates to near-zero, leading to a correction in asset prices.
Now, the market is “starting to see the possibility that inflation won’t be controlled as quickly as we’d expect, and maneuvers by central banks — not just the Fed — are going to squash growth, pushing us down sharply.” Maybe we thought,” Daly said by phone. How much will the rates increase?
Billionaire investor Bill Ackman says ‘markets are bursting’ because the Fed isn’t doing its job
As of Tuesday afternoon, a rally in bonds pushed Treasury yields down 10 to 15 points, allowing the 10-year TMUBMUSD10Y,
down from 2.74%. Meanwhile, the Nasdaq Composite Index comp,
The DJIA fell 2.6%, or more than the Dow Industrials
and S&P 500 SPX,
With so many investors with bright economic growth prospects for so long, opening those trades at the same time is causing more pain in the market. Worldwide, funds invested in equity long/short strategies are in the red for the year, according to a performance review compiled by HSBC’s Alternative Investment Group.
A group of hedge fund managers known as the Tiger Cubs who are crowdfunding tech stocks is being cornered. And Melvin Capital, which bathed in GameStop and Meme shares and was forced to liquidate, was seen as a likely reason for last Wednesday’s broad-based stock selloff, which caused the Dow and the S&P 500 to close. This was the worst daily decline in two years.
“The economy is slowing down and potentially slowing dramatically,” said Gregory Faranello, head of US rates at broker-dealer Amerivate Securities in New York.
“Can we plunge into a recession faster than people expected? The answer is yes, but we will need more time to see the data,” he said. “Not that we are rooting for it, but We’ve had a very dramatic re-evaluation across the board in a very short period of time, and it’s going to affect the economy. We are starting to see signs of this.”
Credit: www.marketwatch.com /