Key findings
- July employment data showed unexpected weakness, raising concerns about a recession.
- The U.S. economy is showing signs of slowing, but has not yet fallen into a severe recession.
- The Federal Reserve's September meeting and possible rate cut will be critical to market direction.
- Historical comparisons suggest two possible scenarios: a soft landing (1994-1995) or a recession (2001).
- The cryptocurrency market, particularly Bitcoin and Ethereum, remains closely correlated with the performance of the U.S. stock market.
Detailed analysis
1. July employment data
- Unemployment rate: 4.3% (expected: 4.1%)
- Nonfarm payrolls increase: 114,000 (expected: 175,000)
Nonfarm payrolls added significantly less than expected (61,000 less than expected), adding to concerns about an economic slowdown.
2. Historical background
2.1 Unemployment rate trends
Month | Unemployment Rate |
|------|--------|
January | 3.6% |February | 3.7% |March | 3.8% |April | 3.9% |May | 4.0% |June | 4.1% |July | 4.3% |
Although on an upward trend, the current unemployment rate is still low relative to the historical average.
2.2 Non-agricultural employment increase (7-month average)
Average monthly job growth over the past seven months: 200,000
This remains above the long-term historical average (2015-2019: 190,000 per month), suggesting that the labor market remains resilient despite recent weakness.
3. The Fed’s Dilemma
The Fed faces a difficult balancing act:
- Inflationary pressure has eased (June CPI showed slight deflation)
- Economic growth is slowing
- Potential recession risks are increasing
The market expects a rate cut in September, and the extent of the cut is crucial to market sentiment and the direction of the economy.
4. Historical comparison
Two relevant historical periods provide potential scenarios:
- 1994-1995: Slowdown but no recession
- The Federal Reserve implemented a timely rate cut
- Stocks continue to rise after initial volatility
- 2001: Recession
- Rate cuts not enough to stop long-term decline
- The stock market enters a bear market
5. Market Impact
5.1 US Stock Market
- The current market correction (down about 10%) reflects a high level of uncertainty
- Overvaluation concerns, especially for AI-related stocks, added to the selling pressure
- The September Fed meeting is a key turning point in determining the direction of the market
5.2 Cryptocurrency Market
- Bitcoin and Ethereum are down about 50% from recent highs
- Crypto markets remain highly correlated with U.S. stocks, lacking independent bullish catalysts
- August and September could be key months in determining the medium-term trend
Conclusion and Outlook
The U.S. economy is at a crossroads, and the next two months will be crucial in determining whether it will be a soft landing or slide into recession. The Fed's actions, especially its September decision, will play a key role. For investors in both traditional and crypto markets, caution is needed and a focus on capital preservation until the economic outlook becomes clearer.
Key dates to watch out for
- August ISM Manufacturing Index Release (August 5, 2024)
- August employment report (September 1, 2024)
- September FOMC meeting (September 17-18, 2024)
Investors should remain vigilant and be prepared to adjust strategies based on incoming economic data and policy decisions.
