Antradienis, 21 gegužės, 2024
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Economic Indicators Shake US Economy to Its Core! Time to Panic or Stay Calm?

The financial markets in the United States have recently experienced increased volatility, as various economic indicators have raised concerns among investors. Rising Treasury yields and higher-than-expected inflation rates have spooked the market, leading to fluctuations in major stock indexes, and causing shifts in various sectors of the economy.

Stock Market Performance

On a recent trading day, all major US stock indexes ended in the red. The Dow Jones Industrial Average slid over 173 points, while the S&P 500 and the Nasdaq each fell by 0.6%. Investor sentiment took a hit as expectations of another interest rate hike later in the year increased, following the release of the Consumer Price Index (CPI) report, which indicated that inflation remained sticky.

Inflation Concerns

The CPI report revealed that inflation in the US remained stubbornly high, with a 0.4% increase in the previous month. Although this was a slight decrease from the 0.6% increase seen in August, it exceeded market expectations of 0.3%. The core CPI, which excludes volatile food and energy prices, slowed to 4.1%, marking its lowest reading since September 2021. This inflation data has caused concerns among investors and has raised the possibility of further interest rate hikes.

Economic Indicators Shake US Economy to Its Core!
US Inflation

Rising Treasury Yields

Simultaneously, the 10-year Treasury yields moved nearly 10 basis points higher to 4.695%, further adding to market jitters. Higher yields can make bonds more attractive to investors compared to stocks, and they can also signal expectations of rising interest rates by the Federal Reserve.

Corporate News

In corporate news, Ford Motor experienced a 2% drop in its stock price after United Auto Workers (UAW) members initiated a strike at its largest plant. On the earnings front, Delta Air Lines was down 2.3%, despite posting better-than-expected results. Conversely, Domino’s Pizza managed to finish 0.1% higher after releasing disappointing results.

Market Reaction

Despite the concerning inflation and economic data, investors seem to be holding onto the hope that interest rates will not be raised in November. This sentiment is partially driven by dovish remarks from Federal Reserve officials and the guidance provided in the Federal Open Market Committee (FOMC) minutes. These indicators suggest that the central bank may not be in a rush to tighten monetary policy.

Labor Market Resilience

The labor market in the US remains robust, with the number of Americans filing for unemployment benefits remaining unchanged at 209,000. Continuing claims did rise, but they are still close to historic lows. This resilience in the labor market may give the Federal Reserve more leeway to keep interest rates at higher levels.

Housing Market Challenges

However, one sector facing challenges is the housing market, with the average rate on a 30-year fixed mortgage reaching 7.57%. This marks the highest level in 23 years and presents significant affordability constraints for prospective homebuyers. While the economy continues to grow, the housing market struggles to keep pace due to these elevated mortgage rates.

Commodity Markets

In the commodity markets, copper futures have rebounded, supported by a softer dollar, industrial demand, and supply concerns. Improved PMI data from China and anticipated infrastructure construction have driven up copper prices. Reports indicate a potential copper shortage in the longer term, further boosting prices.

Soybean prices rebounded after a revision of the US soybean harvest estimate, which lowered the yield due to adverse weather conditions. Meanwhile, Brazil is poised for a record soybean crop, adding to global supply.

Currency Movements

In the currency markets, the Canadian dollar retreated due to the strength of the US dollar and lower crude oil prices. Although the Canadian economy added jobs and wages continued to grow, these factors couldn’t prevent the loonie from depreciating.

Conclusion

The recent economic indicators in the United States have created turbulence in the financial markets. Rising inflation, higher Treasury yields, and mortgage rates are posing challenges for investors and sectors like housing. The labor market remains resilient, while the commodity markets experience fluctuations. Investors are closely watching the Federal Reserve’s stance on interest rates, as it will play a crucial role in shaping the economic landscape in the months to come.

For investors

The inflation is not as terrifying as the markets and media reaction suggest. Look at its dynamics. In these turbulent times, US inflation has remained unchanged, standing at just 3.7%. The statistical inflation forecast is very impressive:

Economic Indicators Shake US Economy to Its Core!
Inflation’s forecast

Stop reading media reports about the market, especially the headlines. Not because journalists and columnists know more about the market than you do, but because you won’t have enough time to fact-check what they say. Always see for yourself what you’re being told. Are they deliberately lying to you?

Don’t read my articles!

For one simple reason. It lies within the structure of our brains. Targeted information gets lost among words, and we readers don’t perceive it the way it was intended. When writing about the market, all you need to say is, ‘LOOK AT THE PRICE!’ And that’s it. But then millions of market analysts will be out of a job.

Look at the price. Is she worried about something? No! She is where she is supposed to be. So why are you worried?

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