47. The Recipe for a Market Sell-Off: Carry Trade, SAHM Rule, Recession Fear

08/09/24 • 29 min

2 Listeners

The stock market has been having quite the week since our last episode on the Fed’s decision to NOT do a rate cut and the resulting effects of the not-so-great unemployment numbers that came out last Friday.

Recipe for disaster?

Is the stock market crashing? Why was there a sell-off and what is a market sell-off? And is this a good time for us self-directed investors to invest more, like, is the stock market on sale?

What were the sell-off ingredients?

The Carry Trade (Yen Got Stronger)
The Sahm Rule (Recession Indicators)
Recession FEAR (Emotional Investors)

Sell-Off Decline: Pull-Back, Correction, Bear Market?

We all know that the stock market recently tanked and there was a huge sell-off. Was this a pull back or a correction, are we in a bear market.

The difference is a decline of:

Pull back = 5-9%

Correction = 10 -19% (Stock Market Is Currently Here)

Bear market = >20%

✨The recent turbulence was the most severe since the 34% decline that occurred in Q1 2020.

✨ Market corrections happen almost every year. Since the early 1980s, there's been a greater than 5% drawdown in the S&P 500 Index in every year but two (1995 and 2017).

✨ The stock market has historically recovered quickly from corrections. The average time to recovery from a 5%-10% downturn is three months. The average time to recovery from a 10%-20% correction is eight months.

✨80% of corrections since 1974 have not led to a bear market.

✨ There's a 73% probability of a double rate cute (.50%)

How do we know we are in a recession?

Great Analogy: https://www.tiktok.com/t/ZTNgX6jUW/

Related Episodes:

Ep. 46) Fed Update: What is Event Risk? Could it Trigger a Sell-Off?

Ep. 45)

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About Us 🌚🌞 Market MakeHer is an investing education podcast taught by a 15-year finance expert to her friend, a beginner investor. Our mission is to demystify the stock market and make financial literacy accessible to all self-directed investors! We teach complex investing topics in a different way - from "Her" perspective. Important Disclosures:
Investing involves risk. There is always potential to lose money when investing in securities. Market MakeHer LLC provides educational content and resources for informational purposes only. We are not registered financial advisors & do not provide personalized investment advice. Consult with a l...

Recipe for disaster?

Is the stock market crashing? Why was there a sell-off and what is a market sell-off? And is this a good time for us self-directed investors to invest more, like, is the stock market on sale?

What were the sell-off ingredients?

The Carry Trade (Yen Got Stronger)
The Sahm Rule (Recession Indicators)
Recession FEAR (Emotional Investors)

Sell-Off Decline: Pull-Back, Correction, Bear Market?

We all know that the stock market recently tanked and there was a huge sell-off. Was this a pull back or a correction, are we in a bear market.

The difference is a decline of:

Pull back = 5-9%

Correction = 10 -19% (Stock Market Is Currently Here)

Bear market = >20%

✨The recent turbulence was the most severe since the 34% decline that occurred in Q1 2020.

✨ Market corrections happen almost every year. Since the early 1980s, there's been a greater than 5% drawdown in the S&P 500 Index in every year but two (1995 and 2017).

✨80% of corrections since 1974 have not led to a bear market.

✨ There's a 73% probability of a double rate cute (.50%)

How do we know we are in a recession?

Great Analogy: https://www.tiktok.com/t/ZTNgX6jUW/

Related Episodes:

Ep. 46) Fed Update: What is Event Risk? Could it Trigger a Sell-Off?

Ep. 45)

Support the show

Previous Episode

46. Fed Update: What is Event Risk? Could it Trigger a Sell-Off?

We recorded this on 08/01/2024, knowing that unemployment numbers will not drop until this podcast airs on 08/02/2024, and that might also change so keep that in mind.

**Employment Report Update from Jess**

Fed's View on Labor Market:Fed Chair Jerome Powell stated that the changes in the labor market are "broadly consistent with a normalization process." However, policymakers are closely watching for signs of deeper issues.

Unemployment Report Highlights:

Unemployment Rate: Jumped to 4.3% in July, the highest in nearly three years.
Hiring Slowdown: Significant reduction in hiring activities.
Concerns: Increased fears of a weakening labor market and potential recession.
Trend: This is the fourth consecutive monthly increase in unemployment, rising from a five-decade low of 3.4% in April 2023.
Cause: The slowdown is driven by weak hiring rather than layoffs.

Following the release of the employment data: U.S. Treasury yields dropped, meaning bond prices rose and we are in a sell off.

Fed Meeting Notes aka The Powell-Point

Fed Chairman Jerome Powell announced on the latest FOMC press conference that there will NOT be any rate cuts. We're shocked, really. Let's go through the data!

It's no secret that most of us Americans are feeling the impact of higher rates to borrow money and inflation. But finally! It's not just us smaller consumers feeling the heat, larger companies are as they reported revenue declines. And if the big companies feel it, they will have to make some changes.

Price Stability + Max Employment & Event Risk

Something feels broken. The Fed has a toolkit to use when something is broken. Which means: rate cuts!

What does it mean for you?

We might see some sell-off in certain sectors. But that is normal rotation. Remember, this is not financial advice, but we have some episodes on What Is Inflation, CD Laddering, Bond ETFs, Are We In a Recession, etc., for you to understand what happens when the Yield Curve is de-inverted and what happens when rates inevitably get cut. Are you going to move your HYSA money into a Treasury, CD Ladder, or Bond Fund?

Investing Rollercoaster

DON'T be an emotional investor. Y

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Next Episode

48. Better W/ My Finance-Sis Mini-Series, Pt. 1: Stock Market Essentials

🔮 Introducing a new mini-series with our Gen Z "finance-sis" Jacey Saige. It's Jessie DeNuit's turn to teach how the stock market works while Jessica Inskip makes sure she's not leading Jacey astray.

In part 1, we talk about why we invest and try to simplify how the stock market works, as best as possible without too many tangents. 🙃

✨ Follow Jacey on ⁠TikTok⁠ and ⁠Instagram⁠ ✨

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Market MakeHer is an investing education podcast taught by a 15-year finance expert to her friend who is a beginner investor. Our mission is to demystify the stock market and make financial literacy accessible to all self-directed investors! We believe that investing is for everyone and that's why we break down complex investing topics (from "Her" perspective), show you free tools/resources on our podcast, and offer a ton of free educational content on our ⁠website⁠!

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