The US market is up quite substantially already from its bottom in June $SPDR S&P 500 ETF Trust(SPY)$. With this in mind, my analysis is based on the following points :
- Labour force
- FED ( raise rates + jackson hole symposium )
- Current market sentiment
- Future earnings recession
Labour Force :
Although the most recent unemployment data was a beat by a huge margin, but in truth, labour force particioation rate had fell since march 2022 and is below 2019 level, which is a huge contributing factor on why unemployment rates fell. Some might argue that the fall in labour force participation rate is due to people wanting to work for themselves, but in my opinoin, it is more likely that people ( mostly lower income group ), lost hope in ever finding a job after seeing big companies saying they will cut employment and some even hinting about laying off workers.
Another point i want to make here is that the although real personal income from FRED data shows that people are more well off now, but as Michael Burry have pointed out, the total consumer credit owned and securitized have increased by alot which means that people are actually unable to afford their daily neccesities. And the only reason for this is due to the real income data being either a mean data or a medium data which is pulled higher by the top 20% and doesn't reflect the real situation of the economy.
This might mean that US is going into a period of slow economic growth & high inflation - STAGFLATION ( what Ray Dalio predicted )
FED :
The FED has raised interest rates from 0.25% from January 2022 to now 2.5% with inflation now at 8.5% which is down from the peak of 9.1% but is still extremely high considering the FED wants to lwoer inflation rate down to 2% which will mean more rate hikes if inflation is sticky. In addition, the FED balace sheet is currently being reduced at a very passive pace at an expected pace of $47.5b per month since June ( $30b treasury bonds & $17.5b MBS ), but up until today, the FED have not offload much MBS and have actually added MBS to their balance sheet ( source : newyorkfed ).
On the 25th - 27th of August, the Jackson Hole Symposium event will be held where finance ministers, FED personel and just any well knowed economist will attend to discuss about 'reassessing constaints on the economy and policy.' It is expected that Jerome Powell will be pressured to provide suitable measures to counter the now worldwide inflation after he told everyone inflation was 'transitory' at the same event last year. If Jerome gets a little too aggressive, the stock market will definitely crash since the market is currently pricing in a FED pivot by summer 2023.
Current market sentiment :
In my opinion, the market sentiment now is abit euphoric. This is because despite the fact that inflation is at 8.5%, the market is pricing in a FED pivot by summer 2023. Apart from this, there are currently meme stcoks at play, most recently $Bed Bath & Beyond(BBBY)$& the net retail buys is still positive. Usually when this happens, it signals that the crash is not over ( search it up & you'll see ). For the past many years as bears predictions are published by famour people like Michael Burry, in my opinion, the reason why the market did not crash is because of additional money printing or a decrease in interest rates, but this time, i believe that the FED cannot afford to do any of those.
Future earnings recession :
The real estate market is quite gloomy now and with interest rates going up and there is a huge amount of consumer credit to pay off, all while companies are preparing to lay off workers. The real estate downturn will crash concumer sentiment like what happened in China but at a smaller scale. This will cause consumer to decrease spending. Alongside this, consumer credit is now at an all time high while interest rates are going up. This will cause consumer to significantly reduce spending. With this happening, it also make sense that buisnesses will start laying off employees as their revenue decrease.
Conclusion :
Here's a theory that i have : US send Pelosi to Taiwan to provoke China in hopes of China attacking Taiwan and the world will sanction China which will absolutely collaspe the Chinese economy and make it impossible for China to overtake US as the biggest economy. At the same time, even if China doesn't attack, US is currently pumping out exagerated bad news about China which will divert attention towards the bad things at China, not looking at the bad things in US. US bad things now include a gloomy economy, white house changing definitions of recession, politicians insider trading etc. And that China is not complying with US audit requirement & not publically publishing data because China don't want US to get data on Chinese citizens, same like China not letting google, meta into China because China doens't want data and money flowing out of China to the west. ( just a thought ).
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