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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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- Bitcoin is currently in the “Extreme Fear” phase of the Fear & Greed Index, scoring 17/100, a 1-year low. It is an excellent buying opportunity. We have been this fearful three times in the last five years: the 2019 bottom, the 2020 bottom, and the 2022 bottom.
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3. Conclusion We do not see the correction in risky assets as the start of a downturn. This type of short-term crisis and panic presents good opportunities for bargain hunting, particularly in equities and crypto, which are now available at bigger discounts. If you have spare money to invest, now may be a good time to do so. Keep in mind that markets have been rocked by premature recession fears during the current bull market. These fears flared early last year during a U.S. regional banking panic but almost recovered as quickly as the Fed intervened to provide emergency liquidity. This proves that the Fed will ‘fix it’ if the economy worsens. Don’t panic and stick to your investment plan.
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