GDP, Interest Rates, and The Lottery.
Good morning investors,
The Bureau of Economic Analysis released the second quarter GDP results on Thursday, showing negative growth at-0.9% for the second quarter in a row. Typically this would be defined as a recession.
However, the NEBR ( National Bureau of Economic Research, the official decision-makers) have said they do not use a simple formula like that.
Stating: “ If it looks like a recession, swims like a recession, quacks like a recession, then it probably is a recession.”
Jerome Powell added on Wednesday's FOMC meeting, where they raised interest rates by 75 basis points for the second time in a row, that the unemployment numbers are still remaining strong at a low of 3.6%. Citing that fact as the reason he doesn’t believe we are headed towards a recession.
The Markets:
Stocks
Despite the warning bells of a recession going off, investors sent stocks ripping on Thursday after the FOMC meeting, primarily due to the easing of uncertainty regarding a full percentage point rate hike.
AMZN 0.00%↑ popping significantly after posting better earnings compared to its competitors in big tech.
AAPL 0.00%↑ looks less impressive; the most valuable tech company reported revenue of $83 billion, only up 2% from the previous year. A slowing from 2021, profits declined by 11%
Real-Estate
Previously owned homes fell by 5.4% in June -14.2% year over year.
Due to rising interest rates, people are forced to stay in their homes or face refinancing to a more unfavorable interest rate on a new contract.
15-year: 4.87%
30-year: 5.70%
* Mortage rates via Quicken Loans
Crypto
Cryptocurrencies are on the rebound after the last federal reserve meeting pooping to highs that they haven’t reached in months prior.
$Bitcoin has jumped over 10% to $24,000 since Wednesday.
Ethereum is up around 16%, trading above $1,700.
Altcoins are up, respectively.
Bottom Line:
With the Federal Reserve and now the ECB ( European Central Bank) raising interest rates aggressively, it is unlikely that this upward move will sustain, especially considering the big tech’s poor earnings.
Shrinking Money Supply = Less Money to Invest
Global Step-Back
The Euro falls to equal the U.S. dollar for the first time in 20 years
(same time as Harry Potter and the Chamber of Secrets came out)
China is expecting property sales to fall by 30%
doubling its original forecast.
A worse year in sales than the financial crisis of 2008.
Why?
If you remember September 2021, when the real-estate giant Evergrande went bankrupt, it left millions of families without homes they had already paid for. As a result, people refuse to pay mortgages while waiting for their houses.
Recession Talk
Consumers are still pessimistic about the economy. However, most retail reports show that they are spending more than last year.
If people think we are in or headed towards a recession, the chances of there actually being a recession dramatically increase.
It might seem funny that people are spending more than they did last year but consider this.
When inflation is high, people are more likely to spend money now vs. letting it rot away over time.
Key Takeaways:
The retail sector is hiring due to inflation and guidance given out by WMT 0.00%↑ during their earnings this week.
The European Central Bank is raising interest rates for the first time in 20 years.
We are most likely in a recession, but no one wants to say it.
Mega-cap earnings are a mixed bag. (Mostly hurting)
With that being said, we look forward to seeing you here next week, and the best of luck to everyone in the markets.
Have a great day, and remember to live in the moment.
This post is sponsored by no one.