The prevailing uncertain and risk-filled landscape could confront investors and other market players with difficult decisions, choosing to steer clear of stocks and seek refuge in other apparent investment alternatives (such as money market funds or bonds). ) and reals (like gold), rather than relying on flimsy banks and the fragile economy in general.
Right in the middle of this changing and challenging economic scenario, write down several issues that we must pay close attention to, specifically: the actions of the United States Federal Reserve (Fed), the behavior of the stock market and oil prices, gold and bitcoin.
According to the highly influential bank Goldman Sachs, in the voice of its head of hedge fund sales Tony Pasquariello, It is interesting to note that while the Fed continues to raise interest rates and execute quantitative tightening (QT), paradoxically, its balance sheet has increased notably.
The ambition of the Fed – the most important central bank on the planet – is to achieve a terminal funds rate above 5 percent, but at the same time a new chapter of replacing the credit crunch with rate hikes has begun. of interest due to the banking crisis.
In other words, the Fed has had to take a step forward in withdrawing liquidity, but two steps back injecting more to help the banks.
As for US monetary policy, the reference rate is expected to undergo two additional increases of more than 25 basis points, one in May and another in June. It stands out, however, that some of the most experienced traders believe that the last increase in interest rates has already happened. In any case, the summer will be interesting to closely follow the evolution of the Fed.
Regarding the behavior of the stock market, Goldman Sachs is expressing some concerns; for example, that market breadth has been objectively poor, leading to a serious loss of momentum in cyclical non-tech stocks and in the more leveraged parts of the market.
However, the benchmark S&P 500 index has been protected by the huge performance of the world’s biggest stocksalong with a large adjustment in US real interest rates.
Meanwhile, the price of oil has fallen to half its highs from last year, a decline that is about the same as it experienced during the 2008 financial crisis and the post-tech bubble recession of 2000.
Although this is not good news for commodity enthusiasts, it could have a positive effect on American households. The implied boost in consumer income from falling oil and energy prices was around 1%, even before the data in recent weeks, which could be an additional reason to be optimistic about the outlook. of people’s spending in the US.
There is correct bullish sentiment surrounding gold that has been quickly reinforced by lower real interest rates in the US, a weaker dollar, negative sentiment and generally unattractive real returns in many financial assets. The quintessential safe haven does not disappoint and everyone should be buying some gold for protection and to boost profits in the medium term.
And while bitcoin has been the best investment so far in 2023, it is still considered a volatile and risky investment, and its status as a “real” asset is still up for debate.
Pasquariello puts into perspective that in the current financial landscape, bad news seems to dominate the scene and the situation of the European and regional banks of the American Union are no exception.
The situation is aggravated by the fact that the financial stress crisis appears to be spreading to other European financial sectorsas evidenced by the recent increases in CDS (or credit default swaps).
The problem of deposit flight persists in the United States, with an estimated 40 percent drop in loans from small banks and a stagnation in those granted by large ones. All of this, taken together, may lead to a 2.5 percent drop in the total stock of bank credit, making the prospect of a recession increasingly likely.
Needless to say that a serious contraction of bank credit looms on the horizon, which makes it possible that a commitment from the US government is needed to prevent the situation from getting worse and maintain a strong economy.
As if that weren’t enough, the flow of money away from stocks continues to be a problem. Money market funds have received more than $238 billion in the past two weeks, revealing a lack of demand for other risky assets and a shift away from bank deposits.
What is exposed here suggests that the risk of a recession “just around the corner” is deepening, during the next 12 to 18 months, a hint that could become a strong headwind for the stock markets and all assets of risk such as weight. Be careful.
Editor’s Note: This text belongs to our Opinion section and reflects only the author’s vision, not necessarily the High Level point of view.
MORE NEWS:
William Beard Master in Economics from the Austrian School; liberal, gold market specialist and editor of investment newsletter Top Money Report