AMERICA’S favorite retailers were thrown into chaos as Wall Street experienced its worst day in two years, with big players like Walmart and Costco witnessing dramatic share drops.
Amid this turbulence, investors are increasingly turning to one of the most reliable indicators to gauge whether a recession is imminent: the Sahm Rule.
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The Sahm Rule, introduced by economist Claudia Sahm in 2019, “without fail” states that the initial phase of a recession begins when the three-month moving average of the U.S. unemployment rate exceeds the 12-month low by at least half a percentage point. , CNBC reports.
The metric has historically provided information about economic crises and its relevance is increased in light of recent economic data.
The latest weaker-than-expected jobs report for July has officially triggered the Sahm Rule, intensifying fears that the Federal Reserve may be falling behind in its efforts to manage the economy.
‘WE ARE NOT IN RECESSION’
However, Sahm herself remains cautious about drawing definitive conclusions from the rule.
In an email to CNBCshe noted: “We are not in a recession now – contrary to the Sahm government’s historic signal – but the momentum is in that direction.”
While Sahm acknowledges slowing economic growth, she points to resilient US consumer spending, stable production data and household income levels as signs that the economy has not yet contracted, according to the outlet.
She emphasized the importance of closely monitoring the economic trajectory, stating that the current situation requires careful management to avoid further decline.
As market volatility continues, Dario Perkins, managing director of global macro at TS Lombard, highlights the limitations of the Sahm Rule for the market.
While it offers valuable insights, Perkins cautions against relying on just one metric.
He argues that a rise in the unemployment rate could signal a more substantial economic recession, necessitating a broader analysis of various indicators and their interconnection.
With the Federal Reserve recently keeping interest rates stable, there is speculation about potential rate cuts in the coming months.
TAKING ADVANTAGE
Sahm expressed concern that the Fed’s decision to delay cuts could cause the economy to contract.
We are not now in a recession – contrary to the historical signal from the Sahm government – but the dynamics are heading in that direction.
Claudia Sam
“The Fed still has a big lever to pull,” she said, emphasizing the need for a proactive approach to easing economic pressure.
As the market faces these challenges, the Sahm Rule serves as a critical tool for investors and policymakers alike.
How far the shares of America’s favorite retailers have fallen
The stock market tanked on Monday, sending several of the nation’s favorite retailers tumbling.
- The target is now worth 133.87 after falling 5.30%
- Costco fell 2.46% and is worth $801.83
- Dollar Tree is down 3.04% and is worth $96.50
- Walmart is worth $67.59 after falling 1.27%
- From 7.44pm on Monday night.
However, experts warn that understanding the full economic picture requires looking beyond a single indicator.
With growing uncertainty in the markets, the next few months will be crucial in determining whether the US economy can navigate these turbulent waters without succumbing to a recession.
THE DROPS
A sudden and violent shift in global markets has wiped out a staggering $6.5 trillion, leaving traders on edge as they face what many are calling the “Great Unwind.” Bloomberg.
This turmoil follows the worst day on Wall Street in two years, where the Dow Jones Industrial Average plummeted more than 1,000 points – an alarming drop typically associated with intense fear and economic anxiety.
The Fed still has a big lever to pull.
Claudia Sam
As markets rose slightly during Tuesday morning trading, a fragile calm took over the financial landscape.
However, this stability is far from guaranteed, especially given August’s reputation for sharp swings in capital markets, the Intelligence reports.
This summer’s fluctuations were exacerbated by the biggest Japanese market crash since Black Monday in 1987, sending shockwaves across global markets.
Warning signs were flashing in the week leading up to the accident.
Notably, Warren Buffett announced that he cut his stake in Apple in half and sold additional shares of Bank of America, one of the country’s largest banks considered “too big to fail,” according to the above news outlet.
These measures have signaled fissures in the intricate web of global finance, where cheap foreign money has traditionally supported strong domestic companies.
As investors assessed the consequences of the crash, a consensus began to form: although the economy is experiencing turbulence, it is not yet in free fall.
Unlike the conditions that led to the economic meltdowns of March 2020 or the Great Financial Crisis of 2008, there appear to be no banks or hedge funds facing serious problems.
Instead, the current recession appears to be driven by a simultaneous unwinding of trading by large investors who borrowed in Japanese yen to invest in US stocks and other significant global assets.
The consequences of this market disruption are substantial.
On Monday alone, more than $1 trillion was wiped out of the seven largest US companies, while cryptocurrencies – often seen as a barometer of risk appetite – plummeted to levels not seen since the winter, according to Intelligencer .
This erosion of wealth could have far-reaching effects as banks and hedge funds reassess their solvency in the midst of this situation.
The implications for the broader economy are becoming clearer.
The probability of a recession has increased dramatically, as indicated by analytics from Goldman Sachs and other economists.
This story originally appeared on The-sun.com read the full story
