Can bad news turn into good news? Learn how a drop in US GDP could benefit your investments

Dear Reader,

Global investors are still trying to predict how far the Jerome Powell-led US Federal Reserve will take. fee.

Central Bank and Interest Rates

More than you realize before you ask yourself what this has to do with you. as dollar Being a global entity of value, the next steps of the “World Central Bank” are being monitored at all times.

Powell was expected to make comments at a press conference shortly after announcing a 75 basis point increase last week, taking the benchmark interest rate from 2.25% to 2.5%.

Although the central bank chairman did not commit to maintaining the rate of increase for the next meeting, it is important to remember that it will only take place in mid-September. Until then, a lot of information will be released.

The American Economy and the Depression

The day after the meeting, we released US gross domestic product for the second half of the year, which showed the planet’s largest economy shrinking by 0.9% (compared to market expectations for growth of 0.4%).

Despite demonstrating that the country is already in a technological recession – while posting two consecutive declines in GDP – many Investors Powell and his subordinates saw the possibility of easing monetary tightening in the coming months in the bleak data.

Since then, major US indices have risen more than 10%. The interest rate on 10-year bonds, which was above 3% not long ago, recently reached 2.6% and has yet to return to its previous level.

But should it be exciting?

At the same time as interest rate expectations were lowered, the market began to raise inflation expectations in the future.

And while the earnings season hasn’t been disastrous, many analysts are revising their year-end profit estimates — albeit a modest 2% revision from what they predicted at the start of the half, in what could be a trigger for further cuts in the coming weeks.

However, the S&P 500’s valuation, meanwhile, started trading near 18 times estimated earnings for 2022, two points higher than seen at the end of the first half.

Also, based on history, the average rating since 1950 is “Bear market rallies” close to the gains of this most recent market action.

Reduce status or allocate resources

Now looks like a good opportunity for those looking to downsize.

But those looking to allocate resources at this time will focus on high-quality companies and defense sectors with good dividend payers.

While bad news can seem predictable and create cognitive discomfort, investors must accept the reality and use it to their advantage.

a hug,
Enzo Pacheco