Soon in recession?

Soon in recession?

DAY

No, we are not on the brink of recession yet. But the risk is growing with the sharp rise in central bank interest rates. And investors are scared.  

Yesterday the US stock market recorded one of its worst daily routs as its major indexes fell sharply. The Dow Jones lost 1276 points, down 3.94%.  

Worse still, the flagship index of the New York Stock Exchange, the S&P 500, for its part fell by 4.32% and that of high technology stocks, the Nasdaq, was plucked by 5.16%. .  

As usual, the Canadian stock market followed suit on Wall Street, while limiting its losses for the day to 1.7%.  

Yet, just before the opening of the New York Stock Exchange yesterday morning, optimism was in full swing as Wall Street managed to complete four sessions in a row on the upside, ending three consecutive weeks of stock market losses.  

Investors were convinced that inflation had peaked in July. And that therefore, they thought in unison, inflation would start to deflate.  

  • Listen to the economic editorial of Michel Girard broadcast live daily at 7:50 a.m. on QUB radio: 

BANG !  

Within minutes of the release of inflation data for August, the stock market began to tumble at breakneck speed.  

Why? Because at 8.3%, the inflation rate in August was higher than what financial analysts and economists had expected of 8.0%. 

Although the he difference is only 3/10 of a percentage point, they did not need more to realize that this surprise rate of inflation in August was going to have the effect of exerting additional pressure on the Federal Reserve (Fed) so that it remains aggressive in raising interest rates. 

Not only will inflation in August lead to another 0.75% hike in the US Federal Reserve's key rate next week, but it will also give the Fed monks all the more reason to continue tightening credit by raising interest rates further. By the way, analysts are not ruling out the possibility that the Fed will raise its rate by 1% next Wednesday.  

The Fed's key rate could reach 4.0% by the end of the year. I remind you that at the beginning of the year it was 0.25%! 

  • Even more from Michel Girard, listen to his editorial broadcast live every day at 7:50 a.m. via QUB radio: 

< iframe src="https://omny.fm/shows/philippe-vincent-foisy/emploi-on-fait-pic-pic-par-rapport-ce-qui-s-est-pr/embed" width="100 %" height="180" frameborder="0" title="Employment: "We peak-peak compared to what happened on the side of the Doug Ford administration," says Michel Girard">

Big effect of interest rates

The more interest rates go up, the more the risk of falling into recession increases AND the more the stock market risks losing feathers because, in the event of a recession, consumers will significantly reduce their spending and corporate profits will fall. < /p>

Also, it is important to remember that the higher interest rates rise, the more conservative investments (such as GICs, deposits, etc.) will yield a better return.  

This encourages many investors to prefer to inject a large portion of their savings into risk-free investments, to the detriment of the stock market and the bond market for negotiable bonds.  

< p>In these difficult times for investments in the stock market and in the bond market, it is better to have a high level of risk tolerance! 

Coming soon if we?