As a seasoned researcher with over two decades of experience in the financial markets, I have seen my fair share of economic cycles – from boom to bust and everything in between. The current state of the US economy, with its soaring volatility and troubling economic data, has set off alarm bells for many market watchers like myself.
The economic downturn in the United States is becoming increasingly severe, exacerbated by the significant fluctuations in the stock market. The economic reports released recently have not bolstered the market’s strength, as most stocks have suffered numerous blows over the past month. Despite the odds being against the economy, there’s uncertainty about whether the Federal Reserve will intervene to stabilize the situation.
Why is US Recession More Likely?
Earlier observations by market analyst Game of Trades have suggested potential economic downturn signs. Specifically, he highlighted the possibility of a significant adjustment in the S&P 500 index, which could occur approximately a year after its last peak. This correction is likely due to inflated stock market valuations that have pushed top companies to unprecedented highs.
Similar to how the stock market experiences periodic corrections, it’s plausible that the digital assets market, including Bitcoin (BTC), may follow suit. While some forecast optimistic peaks for BTC, the correlation with the stock market is an important aspect to consider. The possibility of a simultaneous downturn in both stock and crypto markets is further supported by trends in the yield curve.
Based on Game of Trades analysis, the yield curve exhibits a sharp incline, indicating a potential US economic downturn might be imminent. Furthermore, the Shiller PE Ratio has reached its peak in over 150 years, suggesting the stock market could be overvalued. This ratio measures whether stocks are overpriced or underpriced, and with tech giants like NVIDIA reaching $3 trillion in market cap and MicroStrategy demonstrating impressive growth, this indicates an overvalued market.
One last major indicator that might force the Federal Reserve to step in is the VIX Chart. This chart shows a high volatility and might force an emergency interest rate cut soon.
Investors Can Plan Ahead
In many developed economies, it’s quite normal to experience economic downturns, or recessions. Given its significant global influence, when the U.S., being the largest financial market, experiences a recession, experts often view it as an overdue correction or reset.
To avoid the possible consequences of a market downturn, there’s a general anticipation that the Federal Reserve will take action. Meanwhile, companies such as MicroStrategy are taking substantial risks by investing in protective measures against inflation of fiat currency. Interestingly, while Bitcoin is the hedge of choice for MicroStrategy, other investors prefer Gold.
In the United States, legislation has yet to make Bitcoin betting legal via spot Bitcoin ETFs. To foster broader acceptance, Morgan Stanley has enabled its brokers to trade this product. Additionally, it’s been reported that Wells Fargo is considering launching a Bitcoin ETF as well.
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2024-08-12 01:38