This Market Volatility Was a Market Correction, NOT a Recession Indicator

The Weekly Recap

Good morning and happy Friday! Busy news week as mortgage rates hit their lowest levels in 15 months, a global stock route gave the market a scare on Monday but recovered most losses throughout the remainder of the week as stocks rallied heavily Thursday. US jobs report came in lower than expected as well as jobless claims, US banks see the most loan demand in over two years and we now have a full 2024 Presidential election fight card with both candidates having selected VP’s.

If you missed last weeks newsletter on How Should You Effectively Maximize Your Home Search you can check it in the link.

The Market Volatility Was A Market Correction, NOT a Recession

Global stocks had bit of a scare this week when a weak US jobs report coupled with the Bank of Japan RAISING rates made the Nikkei drop 12% in the worst day for stocks since 1987 AND Warren Buffet (arguably the greatest investor of our time) selling half of Berkshires stake in Apple, put people into panic mode. The conversations from pundits and investors alike were that this is the sign of a coming recession and that in order to avoid a recession, the Federal Reserve would need to issue an emergency rate cut in order to rebalance out the economy. Well, not so fast. Making emotional decisions in the moment almost never pans out and hindsight affords the opportunity to rationally and analytically approach issues.

Let’s first define a recession, a recession is two consecutive quarters of negative GDP growth. GDP growth for Q2 was just revised up so we are still a long way away from being in that scenario. As we try to exit high inflation (over a year ago I argued that A Recession is Better than Prolonged Inflation), these types of economic indicators give the Fed more confidence that the economy and markets are indeed cooling and that if rates were lowered, the economy would not overheat with more money flooding the marketplace.

Sell-offs occur because of the human reaction to news. People get nervous and when they do, they try to mitigate risk as much as possible. It is important to remember that the stock market IS NOT the economy. What has propped up the market over the past 12 months is AI, chip and tech stocks that have provided a major boost to earnings for companies who implement AI. It should also not be forgotten that in the beginning of the year, when stocks were constantly rallying, that the market priced in SIX RATE CUTS to happen in 2024. It was an insane level of thinking, coming off how aggressive the Fed was for such a long time in raising rates. Although the Nikkei plummeted 12% on Monday, it quickly recovered and rallied by more than 10% on Tuesday and US stocks have recovered almost entirely as well as shown below.

• US stocks rallied yesterday (Thursday) on the fall of weekly jobless claims, easing recession worries: 

  • S&P logged its best day since November 2022

  • Nasdaq had its best day since February 

  • Dow had its best day in three weeks

  • The 10-year treasury yield traded above 4% intraday for the first time since Monday’s sell-off, another sign investors are regaining confidence

As the days go by, it becomes more evident that what we are experiencing is a correction in the marketplace rather than the beginning of a recession. Markets go through a correction phase every 12 months with a yearly average of 5-6% pullback on stocks. Volatility may continue for a bit over the next few weeks but if you’re a long term investor, volatility is your friend. Stick with long term convictions and objectives. Large changes in the midst of market turmoil is not advised and its important to remember that stocks do not go up everyday.

If you are looking to pivot from a higher volatility asset class like stocks or crypto, real estate is a much safer and stable asset class that is responsible for 80% of global wealth.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past WEEK as well as newly signed contracts in Manhattan.

Mortgage Rate Update

Mortgage Rates plunged to their lowest level in over a year following the likely overreaction to a less than favorable employment report and market turbulence for an economy still on solid footing. The decline in rates does increase prospective homebuyers’ purchasing power and should begin to pique interest nationwide and give current homeowners the opportunity to refinance.

News You Can Use

• US 30-Year Mortgage Rate Drops on Weak Jobs Data, Fed Rate-Cut Signals Reuters

• Global Market Rout Has More to Do With End of Cheap Funding Than US Economy Reuters

• Bank of America Says Market Sell-off Yet To Breach Key Levels Bloomberg

• A Global Stock Sell-Off Deepened With Investors Fleeing to Safe Havens CNBC

• How Mortgage Rates Could Fall Further Axios

• Weekly Jobless Claims Fall to Lower Than Expected Levels, In Positive Sign for Labor Market CNBC

• US Banks Report Best Loan Demand in Two Years, Fed Survey Shows Reuters

• BOJ Sends Dovish Signal After Rate Hike Spurred Market Meltdown Bloomberg

• US Consumer Spending Slowdown Weighs on Travel and Leisure Groups Financial Times

• US Economy Adds 114,000 Jobs in July, Unemployment Rate Spikes Axios

• Jobs Report Stokes Fears Fed May Have Waited Too Long Yahoo Finance

• Warren Buffett’s Berkshire Hathaway Sold Nearly Half Its Stake in Apple CNBC

• Wall Street Economists Say Investor Fears About Recession Are Overblown Yahoo Finance

• JPMorgan Boosts US Recession Chance to 35% by End of this Year Bloomberg

• See Just How Little $1,500 In Rent Can Get in NYC NY Post

The Deep Insight

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