A brace, in football terms, is the achievement of scoring two goals in one game. The word brace also means to “prepare for” or “get ready to”.
Building onto this wordplay, the title of this blogpost means to get ready for two big “goals” that are coming up soon, and they are the expected announcement of interest rate hikes by the United States (U.S.) Federal Reserve (28 July early morning Singapore time) and the results of the U.S. second quarter gross domestic product (GDP) (28 July evening Singapore Time).
Goal #1: Interest Rate Hikes
The U.S. consumer price index (CPI), commonly referred to as the inflation rate, for June 2022 was at a staggering 9.1%, and the U.S. Federal Reserve is expected to raise interest rates further to combat the rising inflation. Though the expected 75 basis points (0.75%) hike was bandied about, there were some quarters expecting a full 100 basis points (1%).
Goal #2: GDP Growth Rate And Technical Recession
The general consensus among governments, economists and analysts is a country is in a technical recession if its GDP undergoes two consecutive quarters of negative growth, though this is not really set in stone. The first quarter of 2022 saw the U.S. GDP growth rate at -1.6%, and many are expecting the second quarter will be in negative region as well, thus sparking the technical recession definition (though the U.S. government recently had reiterated that it is not really a recession1).
So What Now?
As of the time of my writing of this blog, the U.S. markets are heading southwards, partially due to the “brace” and the profit warning announced by Walmart. The next two days might see more downward pressure on the markets as the interest rate hike announcement and GDP figures release happen.
However, things may not be as bad as it seems as market participants could be expecting hikes and negative GDP growth, thus becoming a non-surprise and result in a not-so-sharp fall in the markets.
To me, these times are like shopping sprees as I can pick up bargains of fundamentally sound counters who are inadvertently dragged down along with the rest, therefore it is important that you have a “wishlist” in your mind on what to get. Alternatively, if researching on individual counters are a bit of a hassle for you, then you may consider using exchange traded funds (ETFs) of indices to get into the action. There are many ways to determine when you should enter, as I had described some here.
Welcome to the markets.
1 – Wingrove, Josh. Biden Team’s Take on ‘Technical Recession’: It’s Not Real. Bloomberg. 26 July 2022. https://www.bloomberg.com/news/articles/2022-07-25/biden-team-s-take-on-technical-recession-it-s-not-a-real-one (accessed 26 July 2022)
I feel that where MSCI World/FTSE World is considered, the worst is over and we are heading towards a slow and painful climb towards breakeven for 2022. VWRD, my preferred world ETF, appears to have stabilised above $100 after spending most of June and July under $99.ReplyDelete
I believe the MSCI/FTSE World was pulled up due to the recent bull of the US markets, which forms slightly more than half of the said indices. However, I opined that we should go forward cautiously towards Q3 as we do not know the repercussions of the inflation and rate hikes at that time. We could still nibble on slight dips.