Find out why the US likely won't escape entering into a recession.
The Federal Reserve has been warning of an impending recession for weeks now. Their warnings are largely stemming from mitigating factors related to an economy saddled with rampant inflation. In an effort to curb soaring inflation rates the Federal Reserve is left with no recourse but to jack up internet rates. High interest rates scare investors and could potentially cause stock market performance to plummet across the board. This may now be exactly what is happening. Signaling that a recession could be far more imminent than initially predicted.
Raising the eyebrows of nervous investors was the poor performance at the Dow earlier this week. CNN reported that as a collective the Dow fell by 810 points. This equates to an overall drop of nearly 2.5%. In layman’s terms, that’s a behemoth loss. The Dow’s staggering decline immediately followed the Federal Reserve’s confirmation that they would indeed be hiking interest rates at the beginning of May.
The Dow’s major downtown can be largely attributed to two major factors. First, initial first-quarter earnings reports from many tech and retail giants were not as impressive as predicted. Many completely missed their earning projections altogether. News of these reports caused their share prices to immediately sink. Among the poor performers were Google’s parent company Alphabet and General Electric.
Secondly, many investors are still waiting for other businesses, particularly fast-growing tech upstarts, to deliver their earnings reports and 2022 outlooks. Tech businesses, particularly the new ballooning upstarts, will be most heavily impacted by the Federal Reserve’s decision to hike rates. This has investors on pins and needles which is ultimately serving to drive stocks even lower. Both of these factors culminate to paint a picture of an imminent recession.
Essentially what is happening is that consumer spending has already slowed. First-quarter 2022 earnings reports are already signaling that. When the Federal Reserve’s rate hikes go into effect in May, it is all but certain that consumer spending will only continue to slow down even more. This translates into less money being pumped into the economy. The less money people are spending means the less money businesses are making. A drop in a business’s revenue is intrinsically tied to its share price in the stock market. When their revenue drops so too does their share price. With the way things look now, this is a situation that is expected to occur collectively across the board. A stock market implosion such as that amid an inflation-ridden weakened economy is what would serve to spur a recession.
An imminent recession is looking more probable than ever. However, there is still hope. Investors are very reactive. Hence, a few bad reports from a few big companies may have them thinking the worst when really there is no reason to be running scared. If in the coming weeks more and more companies begin detailing promising 2022 outlooks, then conversations regarding an impending recession could begin to shift. At this point though, it’s still just a dice roll to see which way the tides will ultimately turn.