US Recession Confirmed, S&P Slumps 2% on Open and Bitcoin Follows

In a confirmation of what analysts had long suspected, the Bureau of Economic Analysis (BEA) reported that the U.S. fell into a technical recession in the second quarter of 2022.

The BEA stated on Thursday that the economy decreased by “0.6 percent in the second quarter of 2022, following a decrease of 1.6 percent in the first quarter.”

Upon the news the S&P 500, which measures and tracks the stock performance of the top 500 listed companies in the U.S., fell by 2.58%.

Bitcoin performed only marginally better, experiencing a drop of 2.08 over the same period to drag the digital asset back below the $19,000 resistance line.

And now, the real pain of recession cometh

In an eventful week for world markets, the final confirmation that the U.S. had already entered a technical recession offered little respite or room for optimism.

Appearing on Bloomberg, Seema Shah, Chief Global Strategist at Principal Global Investors was not prepared to sugarcoat the situation. When asked if there was more pain to come, Shah answered emphatically in the affirmative.

“Certainly. I think [Q3] was a little more moderate,” said Shah. “In July and Aug. you had this almost ridiculous optimism feeding into the market, and this hope the Fed and central banks would capitulate to weak growth, and then the realization that there is just one focus in town and that is inflation. It has taken all the expectations back to higher rates, low growth, and of course lower earnings, and it is pushing down the market, and it is not over yet.”

According to Shah one of the biggest issues for the U.S. is the strong labor market. With news that jobless claims are now under 200,000 fighting inflation is exceedingly difficult. That may eventually force the Fed to torpedo its own jobs market.

Shah said the “strong labor market is gonna be the U.S.’s undoing because as long as the labor market is strong the Fed has just got further and further to go. And they have to go. They’re going to be engineering a hard landing.”

The fight to curb inflation continues

Governments around the world are now having to face up to the realities of strict COVID-19 lockdown policies which heavily damaged productivity even as governments devalued their own currencies through quantitative easing programs.

Fighting inflation has now become an obsessional focus for political regimes of all kinds the world over, except in the U.K. which has instead cut taxes and announced a fresh wave of spending plans.

Early indications suggest that this plan is flawed. U.S. advisors are now worried about the economic irresponsibility the U.K. government is displaying. 

As reported by Bloomberg Gina Raimondo, U.S. Commerce Secretary said: “The policy of cutting taxes and simultaneously increasing spending isn’t one that’s going to fight inflation in the short term or put you in good stead for longer-term economic growth,” before she went on to say that, “investors and business people want to see world leaders taking inflation very seriously.”

The confirmation of a recession in the U.S. market, combined with the shock of a cavalier British economic policy, means that more financial hardship seems a certainty.

According to Shah though, the worst is yet to come. So when asked what the opportunities still exist in this market the analyst admits that this is an increasingly tough question to answer. 

“Increase your liquidity, so you are able to take advantage of opportunities,” she says.

Good advice for anyone with liquidity to spare. When the fire sale eventually starts, the number of retail investors with excess capital may be very few indeed.