Everything's crashing - help!

[Luuk Chaai]

from JP Morgan     ( or,,  you can just say Bidenonmics )

What's happening?

Markets are trading with a risk-off sentiment following last week's jobs report. The report showed a significant weakening in the labor market and investors are now grappling with two major questions:

1. Is the recent economic weakness a shallow descent into a soft landing or a downward spiral toward recession?
2. If it’s the latter, are rate cuts too little, too late?

How is the market reacting?

In traditional risk-off fashion, equities are down (especially tech and growth), and Treasury yields are lower as of 9:40 a.m. ET.

• Equities are lower across the U.S., Europe and Asia
  • Japan (a relatively more cyclical and consumer-driven economy) closed -12%, in its worst single-day performance since 2008.
  • Euro Stoxx 50 -2.8%
  • The CBOE Volatility Index (VIX) (a standard measure of equity market volatility) has doubled since Friday.
  • The Nasdaq and S&P 500 have both opened -4% lower.
  • The Magnificent 7 (-9%) is having its worst intraday drop since 2015.

• Rates across the curve are lower
  • The two-year (3.75%) is at its lowest level in a year, and down 34 basis points since Friday's open.
  • Futures markets are pricing in 130 basis points of cuts (up from 70 basis points on Thursday's open).

What's behind the moves?
 

1. The U.S. labor market report on Friday, August 2 was softer across the board. Market participants, in particular, focused on the increase in the unemployment rate to 4.3%. The expectation was 4.1%, and it's now up from a cycle low of 3.4%. There is an indicator called the Sahm rule, which suggests that recessions typically follow these types of increases in the unemployment rate, garnering focus around the market. Further, other soft U.S. data, such as the recent Institute for Supply Management (ISM) print (manufacturing index came in at 46.8 versus 48.8 expected on August 1), is contributing to fears of a growth slowdown.
2. Japanese and other international markets today are playing a degree of "catch-up" to the decline in U.S. markets on Friday.
3. The Federal Reserve had a rate announcement just before the above, where rates were kept on hold, which has resulted in a fairly market-wide belief that the Fed is now "behind the curve" on cutting interest rates. The market has swiftly moved to price in a 50-basis-point cut instead of 25 basis points in its September meeting, with chatter of a potential intra-meeting cut.
4. The yen was a great funding source all year. Rates were lowest in the world and it just kept getting cheaper and cheaper. But that has reversed rapidly. The Bank of Japan is now tightening and the yen has strengthened rapidly. This catalyzed "carry trade" unwinds as leveraged investors liquidate their global risk asset positions (Topix -12% last night, Nasdaq now down over 10% from peak, VIX up to 50).
5. A bit secondary from a market standpoint, but also important, is the geopolitical concern of a potential attack on Israel by Iran, which U.S. intelligence evidently believes to be imminent.

What does this mean for portfolios?

It means that volatility is back. It can feel uncomfortable for investors when the risk pendulum swings rapidly from sticky inflation to an impending recession. The average year that ends with a gain comes with an 11% peak to trough decline. We are currently approximately 8% below all-time highs. The Sahm Rule may be the latest "fool proof" recession indicator to be a false positive (after the Leading Economic Indicators [LEIs], the ISM surveys and the yield curve).

[ExpatOilWorker]

Just a glitch or maybe a dead cat 🐈 bounce. 

 

[chiang mai]

1 hour ago, ExpatOilWorker said:

Just a glitch or maybe a dead cat 🐈 bounce. 

 

I was thinking dead cat bounce but Bloomberg is saying the bottom is in.....JPM estimates there's another 50% of the carry trade yet to cash out. S&P is up 1%+ currently. Overall I'm down 2% thus far which is very respectable, I think.

[save the frogs]

2030 = (predicted) "Great Reset" = "post labor AI economy"

 

the whole economic system will be totally revamped

 

so anything and everything is up for grabs for crashing in or before 2030 

 

I wonder if I should go on a spending spree before the dollar collapses