Real estate fears explosion, US dollar index falls below 104

Previously, the international financial market has been focusing on whether the Federal Reserve will raise interest rates and by how much. However, the focus is gradually shifting to whether the U.S. economy will enter a recession and the extent of the impact of such a recession on the global economy.

The continuous decline in the U.S. stock market this year has been primarily influenced by the Federal Reserve's interest rate hikes. However, the U.S. stock market will not rise simply because the Federal Reserve reduces the magnitude of interest rate hikes or halts them next year.

This is because if the U.S. economy falls into a recession, without the growth of corporate profits, the stock market will also struggle to perform well.

We have reviewed the data from every recession since 1960 and arrived at a rather pessimistic conclusion, which we will discuss with everyone in this article.

01. U.S. Stock Market Decline

Last night, the final closing of the three major U.S. indices was relatively calm. The Nasdaq Index almost closed flat, the S&P 500 Index only rose by less than four index points, a gain of 0.1%, and the Dow Jones Industrial Average, which had the largest increase, rose by nearly 0.3%.

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However, looking at the intraday performance, there were several fluctuations. There was a decline at the opening, followed by a rebound, but after another decline, the indices slowly rose again, and by the time of closing, each index had slightly increased.

However, due to the larger decline on Monday, Tuesday's performance did not fully recover from the losses.

02. Important Upcoming News

On Wednesday and Friday, the U.S. real estate sector will release important data, and on Friday, the PCE price index, which the Federal Reserve pays the most attention to, will also be announced. It seems that the U.S. stock market may be more prone to significant fluctuations in the last three trading days of this week.Due to the ongoing interest rate hikes by the Federal Reserve, the 30-year mortgage rates remain high, making the real estate sales data a significant concern for the industry.

As interest rates continue to rise, surpassing those of subprime loans, industry insiders are worried that the U.S. real estate market might face another crisis.

The Personal Consumption Expenditures (PCE) price index is a key inflation metric that the Federal Reserve closely monitors. Given that previously released Consumer Price Index (CPI) and Producer Price Index (PPI) data have shown a slowdown in year-over-year growth, this PCE index may also exhibit a decline.

With a considerable buffer period until the Federal Reserve's next meeting in mid-February next year, the economic data during this time can allow the Federal Reserve to more carefully consider whether to raise interest rates by 25 basis points at the next meeting.

For the U.S. stock market, it is also set to enter a rare period of calm. Without the Federal Reserve's interest rate hikes, the stock market may experience a certain rebound.

Last night, most of the large-cap technology stocks in the U.S. stock market saw a slight increase, but the gains were not significant. The highest gain was by META, up by 1.07%, while Apple, Amazon, Google, and Microsoft all saw gains of less than 1%.

Tesla, a leader in new energy vehicles, once again experienced a significant drop yesterday, closing down by 8%. The stock price fell below $150, reaching a new low in two years.

However, in contrast, Chinese new energy vehicle companies like NIO, XPeng, and Li Auto all saw increases, with XPeng's stock price rising by 5.5%.

Other Chinese concept stocks fluctuated, with Bilibili's stock price increasing by 2%. Alibaba, Pinduoduo, and JD.com fell by 1%, while Baidu's stock price dropped by 3%.

Particularly noteworthy is that the U.S. Dollar Index has once again plummeted, breaking below 104. Each significant rise and fall of the U.S. Dollar Index tends to cause a reshuffling in the global financial markets.03, Historical Recessions

The debate continues over whether the U.S. economy will fall into a recession. Most Wall Street investment banks believe that the U.S. economy is bound to enter a recession in 2023. However, U.S. officials deny this, arguing that the country still has a chance for a soft landing or only a mild recession.

Historical data, however, shows that in the past 60 years, the U.S. has never been able to avoid a recession after high inflation. The highest inflation rates were 12.3% in 1974 and 14.8% in 1981. These two rounds of inflation took 24 months and 41 months, respectively, to fall back to the 2% target.

In the current round of inflation, the highest CPI value has reached 9.1%. Based on past data, it is difficult to fall to 2% in the short term and is expected to take at least two years. This means that the Federal Reserve will not see 2% inflation data in 2023.

Predicting with past data models, once the unemployment rate reaches 4.0% to 4.2%, the U.S. will fall into a recession. The Federal Reserve has previously predicted that by the end of next year, the U.S. unemployment rate will be as high as 4.6%.

In fact, for the Federal Reserve, an increase in the unemployment rate is necessary to reduce inflation. This is because the current inflation is a spiraling inflation, where rising prices, a tight job market, lead to wage increases, which are transmitted to production costs and prices, further driving up inflation.

Only by breaking this cycle will prices slowly fall, and the key to breaking the cycle is to cool down the job market and increase the unemployment rate.Therefore, from this perspective, even if the US stock market has a recovery in the future, it is unlikely to see a significant rebound.