US Recession: Is Another Stock And Crypto Selloff Ahead?
The US Recession fears have fueled concerns among the market participants, as evidenced by the recent selloff in the financial market. Although some experts have allayed concerns over the economic woes, aiding a recovery in the broader market, some are still staying on the sideline seeking more cues before entering the investment arena. In other words, some investors are seeking insights into the stock, and the crypto market selloff will continue in the coming days.
Market Selloff Amid US Recession Fears
Goldman Sachs’ global chief equity strategist, Peter Oppenheimer, recently shed light on the market movements. He offered historical context for a better understanding of the market fluctuations that have been noted recently.
Meanwhile, the recent sell-off in the global financial market was primarily driven by the unwind of the carry trade, further fueling the US recession concerns. For context, the investors, in this case, borrow at lower costs in one currency, like the yen, to invest in a higher-yielding currency, such as the dollar.
Last week, the Bank of Japan initiated its largest rate increase since 2007, sending the yen to a four-month high against the dollar. Simultaneously, the dollar weakened as the Federal Reserve hinted at potential rate cuts in the US. This scenario led to an unwind of the popular carry trade, contributing to the market sell-off.
Another factor was weaker-than-expected jobs data. Initial jobless claims came in softer than anticipated, and the unemployment rate exceeded 4.3%, triggering the Sahm Rule, a key recession indicator. This combination of events led to the worst day for the S&P 500 in almost two years as speculations over the US recession grew.
However, Peter Oppenheimer emphasized the importance of context, noting that global equities had seen a strong rise since last October, with the NASDAQ up over 50%. This rapid growth, coupled with high valuations, meant it didn’t take much disappointment to trigger a correction.
He stated, “We had a very strong run-up in equity markets, and it wouldn’t have taken much to trigger a correction.”
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What’s To Expect Next?
Oppenheimer believes that the recent correction was relatively contained, with the S&P 500 falling slightly less than 10%. He attributes this quick correction to the unwind of the carry trade.
In addition, the Goldman exec. views the recent market pullback as healthy, given the strong rise in equity markets over the past six to nine months. He remarked, “Some pullback after that kind of backdrop is quite healthy. It’s important to say that once you’ve had a correction of this scale, equities typically recover as long as a recession does not follow.”
Goldman Sachs’ economists currently estimate a 25% probability of a US recession over the next year. They expect interest rates to begin decreasing globally and in the US soon. However, he warned that there could be short-term volatility after the recent sell-off, as it would take some more time for the investors to regain confidence in the market.
Meanwhile, the global cryptocurrency market also noted a slump today, with BTC price slipping nearly 3%. Altcoins like Ethereum, BNB, and Solana, among others, declined by 7%, 3%, and 2%, respectively.
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