Wall Street Sounds the Alarm: The Deteriorating State of the U.S. Economy
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Economic Warning Signs: Fed Hesitation and Weak Jobs Report Fuel Market Fears
It looks like investors are starting to figure it out. Bad economic numbers continue to pour in, yet the Federal Reserve has refused to cut rates. We've seen this story before, and it never ends well.
The saying "he who hesitates is lost" applies here, as the Fed's hesitation could lead to significant economic pain in the coming months.
Dow Drops 600 Points and Nasdaq Enters Correction After Weak July Jobs Report
On Friday, stocks plummeted due to a weaker-than-expected jobs report for July, sparking fears of a potential recession. The Dow Jones Industrial Average dropped 610.71 points (1.51%) to 39,737.26, the S&P 500 fell 1.84% to 5,346.56, and the Nasdaq Composite lost 2.43% to close at 16,776.16, entering correction territory with a decline of over 10% from its recent high.
The July jobs report revealed nonfarm payrolls increased by only 114,000, significantly below the expected 185,000, while the unemployment rate rose to 4.3%, the highest since October 2021. This led to a rush into bonds, pushing the 10-year Treasury yield to its lowest since December, as investors feared the Federal Reserve's decision to maintain current interest rates might have been a mistake.
Major tech stocks suffered, with Amazon falling 8.8% after missing revenue estimates and issuing a poor forecast, Intel plunging 26% due to weak guidance and layoffs, and Nvidia declining 1.8%. Bank stocks were also hit hard, with Bank of America down 4.9% and Wells Fargo dropping 6.4%.
Despite recent gains, the market faced a volatile week, with the S&P 500 fluctuating more than 1% in each of the last three sessions. Optimism on Wednesday, following hints of a potential Fed rate cut in September, was overshadowed by Friday's disappointing job figures, leading to increased concerns over the economic outlook.
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Market Turmoil: Fears of Delayed Fed Rate Cut and Weak Jobs Report Spark Sharp Declines
Traders have been banking on a Federal Reserve rate cut in September, and Fed Chair Jerome Powell hinted at this on Wednesday. The anticipation of lower borrowing costs has driven stock prices up in recent months. However, fears are now mounting that the Fed's actions may be too late to stabilize the job market, exacerbated by a disappointing jobs report on Friday, which revealed a rise in unemployment to 4.3%.
Following Powell's warning about labor market weaknesses, the Dow fell over 600 points on Thursday, and the S&P 500 and Nasdaq also saw significant declines. This downturn continued globally, with Japan's Nikkei 225 dropping 5.8%. Poor earnings reports from Amazon and Intel added to the market's woes, causing further declines on Friday, with the Dow down 800 points, the S&P 500 futures down 2.6%, and Nasdaq futures down 3.1%.
Despite these challenges, the US economy shows signs of resilience, with strong second-quarter GDP growth and improving housing data. However, the market is expected to remain volatile in the coming months as investors and economists adjust to this new economic phase.
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Markets Push for Federal Reserve to Cut Interest Rates Amid Recession Fears
The market is increasingly eager for the Federal Reserve to begin cutting interest rates soon, as emphasized by Claudia Sahm, chief economist at New Century Advisors. Sahm argues that the Fed should start easing monetary policy to prevent dragging the economy into a recession. She highlights the Sahm Rule, which indicates a recession when the three-month average unemployment rate is half a percentage point above its 12-month low. With the current 4.1% jobless rate nearing this threshold, Sahm warns that holding interest rates at their highest level in 23 years is risky.
Despite these concerns, Fed Chair Jerome Powell downplayed the Sahm Rule, suggesting the labor market remains robust with decelerating wage growth. He indicated that the Fed is maintaining a cautious approach, keeping the overnight borrowing rate between 5.25%-5.50% and requiring greater confidence in achieving 2% inflation before considering rate cuts.
Markets anticipate aggressive rate cuts starting in September, with further reductions expected in November and December. DoubleLine CEO Jeffrey Gundlach believes the Fed's current stance risks recession and predicts more significant rate cuts than currently projected, possibly up to 1.5 percentage points over the next year. Gundlach argues that with inflation likely to drop below 3%, there is substantial room for the Fed to cut rates without being excessive.
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Manufacturing PMI Drops, Indicating Faster Economic Contraction in July
The ISM Manufacturing PMI fell to 46.8% in July, down from June's 48.5%, signaling a faster contraction in the manufacturing sector. Timothy Fiore, chair of the ISM’s manufacturing business survey committee, noted that the sector has been contracting for the past four months after a brief expansion in March. Of the five subindexes contributing to the PMI, only supplier deliveries showed expansion.
Key subindexes such as new orders, production, and employment continued to contract, with the new orders index dropping to 47.4%. Major industries including machinery, transportation equipment, and chemical products experienced significant contraction. Survey respondents highlighted lower sales and slow business conditions, with some noting a decline in consumer spending and unmet sales forecasts.
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Badcock Home Furniture to Close All Stores After 120 Years Due to Bankruptcy
Badcock Home Furniture & More, a 120-year-old furniture chain with 380 stores across the South, is shutting down after its parent company, Conn's, filed for bankruptcy. Conn's, which acquired Badcock last year, has amassed $2 billion in debt and finished 2023 with a $77 million net loss. Conn's stock has plummeted 93% this year, leading to a delisting notice from Nasdaq.
The closure affects approximately 3,950 employees, both full-time and part-time. This development is part of a broader trend of home goods retailers struggling with high costs and inflation, with other companies like Bob's Stores, Z Gallerie, and Mitchell Gold + Bob Williams also filing for bankruptcy. Overall, US retailers have announced nearly 2,600 store closures in 2024
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Economic Storm Looms Despite Claims of Stability: Preparing for the Future
If the U.S. economy is truly in "good shape" as the mainstream media claims, why are we witnessing these troubling signs? In my view, we are on the brink of an economic storm that will intensify in the latter half of 2024, with an even bleaker outlook for 2025.
So, what should you do about all of this?
In the short term, focus on protecting your assets and building a substantial emergency fund. Regardless of the circumstances, you will need sufficient funds to cover your expenses.
In the long term, we are convinced we are heading towards one of the most challenging periods in history. Our leaders have made poor decisions for decades, and now we are entering a time when the repercussions of those decisions will become apparent to everyone
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This story is inspired by an article originally published on The Economic Collapse Blog
Sources of Information
CNBC.com: Dow closes down 600 points, Nasdaq enters correction after weak jobs report: Live updates
CNBC.com: Markets are clamoring for the Fed to start cutting soon: ‘What is it they’re looking for?’
IndustryWeek.com: ISM Report: Manufacturing PMI Falls 1.7 Points in July
NYPost.com: Major furniture chain Badcock to shut all its stores after 120 years
Insight from Troy Anderson, Co-Founder of Revelation Watchers
In these uncertain times, it is easy to feel overwhelmed by the challenges and changes we face. However, as believers, we have a source of unshakable hope and wisdom in the Word of God. The Bible reminds us that even in the midst of turmoil, God is with us, guiding us and providing for our needs.
Proverbs 3:5-6 (NIV) says:
"Trust in the Lord with all your heart and lean not on your own understanding; in all your ways submit to him, and he will make your paths straight."
This verse encourages us to place our trust fully in God, not relying on our own understanding but seeking His guidance in every aspect of our lives. When we submit to His will, He promises to direct our paths and lead us to the right decisions.
Isaiah 41:10 (NIV) reminds us:
"So do not fear, for I am with you; do not be dismayed, for I am your God. I will strengthen you and help you; I will uphold you with my righteous right hand."
God's assurance of His presence and support can bring immense comfort. He promises to strengthen and help us, holding us up with His righteous right hand. No matter what challenges we face, we can find solace in knowing that God is with us.
As co-founder of Revelation Watchers, I am reminded daily of the importance of staying vigilant and prepared, both spiritually and practically. The Bible encourages us to be wise and discerning, understanding the times we live in.
Ephesians 5:15-17 (NIV) says:
"Be very careful, then, how you live—not as unwise but as wise, making the most of every opportunity, because the days are evil. Therefore do not be foolish, but understand what the Lord’s will is."
We are called to live wisely, making the most of every opportunity to do good and to align our lives with God's will. By seeking His wisdom and understanding, we can navigate the complexities of life with confidence and hope.
Final thought: Let us hold fast to our faith, trusting in God's promises and seeking His guidance in all things. May we find strength and encouragement in His Word, knowing that He is with us every step of the way. Together, as a community of believers, we can face the future with hope and courage, anchored in the unchanging truth of God's love and faithfulness.
Blessings,
Troy Anderson
Co-Founder, Revelation Watchers
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Join Us in Prayer: Prayer for Strength, Guidance, and Community
Dear Heavenly Father,
We come before You with hearts full of gratitude and humility. In these times of uncertainty and challenge, we seek Your presence and guidance. We trust in Your promises and find comfort in knowing that You are always with us.
Lord, we ask for Your strength and encouragement as we navigate the complexities of life. Help us to hold fast to our faith, to seek Your wisdom in all things, and to trust in Your unfailing love. May Your Word be a light to our path, guiding us through every trial and triumph.
We pray for our community of believers, that we may support and uplift one another, facing the future with hope and courage. Let us be anchored in the unchanging truth of Your love and faithfulness, drawing strength from Your Holy Spirit.
Thank You, Father, for Your constant presence and care. We place our lives and our futures in Your hands, knowing that You have a perfect plan for each of us. May Your peace, which surpasses all understanding, guard our hearts and minds in Christ Jesus.
In Jesus' precious and holy name, we pray.
Amen.