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Don’t be fooled by Wall St, the U.S. is still heading for recession

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In financial circles, the adage “being early is being wrong” often holds true.

Over the past two years, as pessimistic economists and market analysts sounded recession alarms, it seemed they might have erred on the side of caution.

As early as April 2022, bearish forecasters began warning of a looming recession and an accompanying stock market downturn. For instance, in an October 2022 Reuters poll, 65% of surveyed economists predicted a recession within the following 12 months. The outlook appeared grim, and a downturn seemed imminent.

The good news

Fast-forward to the present, and the US economy continues to bask in the sun.

Unemployment remains below 4%, inflation is on the decline, consumer spending persists, and the S&P 500, after a robust start to the year, cooled off but still displayed significant gains. Additionally, economists surveyed by the Philadelphia Fed predict a 1.6% growth in GDP for the third quarter—hardly indicators of an impending recession.

Optimistic economists, embracing the opportunity to say “I told you so,” now believe that the economy is poised for a soft landing—a scenario where inflation decreases without the need for a recessionary shock to the system. Major financial institutions like Bank of America and JPMorgan have revised their forecasts, suggesting that a recession in 2023 is unlikely, if not altogether avoidable.

However, skeptics warn against prematurely declaring victory. Top Wall Street strategists and economists emphasize that there is substantial evidence pointing toward an impending recession, despite current economic stability.

Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, cautioned, “To say today that we’re going to have a soft landing is so premature. History tells you that you really can’t make that assessment.”

The Role of Interest Rates

The focal point of economic pivoting lies in the Federal Reserve’s interest rate policies. Higher interest rates, affecting mortgages, auto loans, credit cards, and other loans, can limit consumers’ purchasing power and hamper businesses’ borrowing capabilities. In theory, these elevated interest rates can lead to reduced demand and inflation control, as companies lower prices to attract cautious consumers. Conversely, lower interest rates can stimulate economic activity by making borrowing more affordable.

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Money

Traders bet on Bitcoin hitting $100k by end of year

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Surge in Bitcoin prices follows pro-crypto political victories, with traders betting on a $100,000 milestone by year-end.

Bitcoin’s value surged past $90,000 on Wednesday, marking a record high amid investor excitement surrounding a possible cryptocurrency renaissance as Donald Trump steps into his second term as U.S. president.

The election of Trump, who has openly endorsed crypto, has sparked a 30% rise in bitcoin’s price since Election Day, boosted by the success of dozens of congressional candidates supported by crypto-friendly political action committees.

Hitting $100,000

According to Jake Ostrovskis, an OTC trader at crypto market maker Wintermute, traders are betting that Bitcoin could hit $100,000 before the end of the year, with $850 million in options contracts speculating on this milestone by December 27.

The crypto industry, which contributed around $170 million to support candidates viewed as allies, is optimistic about a wave of deregulation and favorable policies.

Trump has promised to establish a national bitcoin reserve and aims to replace SEC Chair Gary Gensler, who has led a strict regulatory approach to crypto.

With aggregate open interest on Bitcoin derivatives soaring to $61 billion, investors are increasingly bullish, betting on bitcoin’s growth via options and perpetual futures contracts.

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Money

Consumer prices rise as Fed weighs December rate cut

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Consumer prices ticked up in October, marking a slight rise after September’s 3½-year low, showing an uneven path for inflation.

Despite the bump, the increase likely won’t deter the Federal Reserve from a possible December interest-rate cut.

The Labor Department reported consumer prices were up 2.6% from a year ago, with core inflation, excluding food and energy, up 3.3%.

Steady consumer spending and hiring may fuel debate on slowing rate cuts early next year.

Investors welcomed the report, betting on a quarter-point rate cut in December.

This response reflects confidence that President-Elect Trump and the Fed will avoid early policy clashes, despite Trump’s pro-lower-rate stance.

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Wall Street rallies as oil prices dip and bitcoin hits new high

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Wall Street started the week on a high note, extending last week’s rally as oil prices fell and bitcoin surged to a new record.

The Dow Jones jumped 1%, reaching over 44,000, with Tesla and big banks leading gains.

Crypto stocks soared as bitcoin hit an all-time high above $82,300, driven by optimism about lighter regulation.

Investors are also focused on upcoming inflation data, which could provide more clues about interest rates.

The dollar remained near a recent peak as Federal Reserve speakers, including Chair Jerome Powell, are set to weigh in later this week.

European markets followed suit, with the pan-European STOXX 600 rising over 1% on Monday.

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