To The Moon

The Bear Bear is back!

On Wednesday, US stocks decline while bonds rally due to weak employment data and weaker services data, causing concerns about a possible recession among investors. Recent gains in US stocks were also halted, with major averages falling due to fears about slowing growth and recession, particularly in the industrial, materials, technology, and banking sectors. Investors turned to Treasury bonds for safety, leading to lower yields, and doubts arose about the Federal Reserve's plans for rate hikes. The latest economic data for the US economy suggests weakness, with the Atlanta GDP Now model estimate for real GDP growth in Q1 2023 down to 1.5% on April 5th from 1.7% on April 3rd.

Bad news used to be good news….

Last year, bad economic data can actually be good news for the stock market. This is because when economic data suggests that the economy is weakening or underperforming, the Federal Reserve is less likely to increase interest rates. The Fed uses interest rates to manage the economy and prevent inflation. When the economy is strong, the Fed is likely to raise interest rates to prevent inflation from getting out of control, which was bad news for the stock market as higher interest rates can make borrowing more expensive and reduce corporate profits, and higher interest rates also reduce the price-to-earnings (P/E) multiple or valuation of stocks.

Therefore, whenever the labour market reported bad news or signs of economic cooling last year, investors cheered and market rallied as they feel more hopeful for the Federal Reserve to change course on its interest rate hiking campaign.

Now, Bad news is really bad news.

Recent pull back in economic activities is worse than expected, and investors are now fearing a severe hard-landing. ISM service index fell sharply to 51.2 from 55.1, versus the expectation of 54.5. For the first time in nearly two years, the number of job openings dropped below 10 million in February, leaving investors to wonder if the Federal Reserve's actions to restrain the labour market could have gone too far, tightening the economy to the point of an economic slowdown or recession.

Conclusion

Recent events looks to be the start of a new trend, and value stocks such as MCD and KO now becomes the shining star again. In any case, its important to have a diversified portfolio with quality companies that can weather all storms. Good luck and have fun!

@Daily_Discussion @TigerStars