Lucas on Warpcast

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The global financial landscape witnessed a turbulent week, with significant declines sweeping across major stock indices and the cryptocurrency market. Amidst this volatility, investors wonder whether to brace for a prolonged downturn or see this as a strategic opportunity. In our latest market report, we delve into a comprehensive global macro overview, dissect the factors driving widespread sell-offs, and offer insights on navigating these challenging times. Stay informed, gain a clear perspective on positioning your investments, and understand the critical data that shapes the market dynamics through the research below. Title: U.S. Recession Alert! An In-Depth Analysis of the Market

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1. What happened? 1.1. Overview - On August 5th, the global stock market experienced significant declines, leading major share indices to tumble just weeks after reaching record highs: - New York: The S&P 500 finished the trading day down 3%, marking its worst day in nearly two years, closing at 5,186. This extended its decline from its peak to 8.5%. - Tokyo: The Nikkei Index fell by over 12%, the biggest drop since 1987, erasing its gains for the year. - Taiwan: The benchmark index had its worst day ever. - Other Markets: Stock indexes in South Korea, India, Australia, Hong Kong, and Shanghai all recorded their biggest declines in four years.

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1.2. What Caused the Bloodbath? - Fears of US hard-landing: July’s weak jobs report revealed an unemployment rate increase to 4.3%, a nearly three-year high. This triggered the “Sahm Rule,” which indicates a recession when the three-month average unemployment rate is at least 0.5 percentage points higher than the lowest level in the previous 12 months. The current three-month average is 4.1%, compared to the lowest level of 3.5% in the past year, creating a gap of 0.63%, thus signaling a recession.

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- Selling Pressure from ETFs: Bitcoin experienced $528 million in outflows, making it not immune to the broad asset class sell-off. This was driven by fears of a U.S. recession, geopolitical concerns, and broader market liquidations across most asset classes.

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2. What should we do? What’s Next? - Regarding fears of a U.S. recession, it is crucial to watch the labor data next month to see if the trend continues. The rolling 3-month average will provide a better guide. Currently, U.S. labor data indicates modest weakening, not a disaster scenario. - In our view, the recession panic is overblown and the market overreacts. The economy is slowing down, not crashing. The U.S. economy is still growing, with Goldman Sachs forecasting an increase in Q3 GDP. Although the chance of a U.S. recession within the next 12 months has risen. It only increased from 15% to 25%, which remains limited, according to Goldman Sachs.

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