Author: An analysis by Jan Baumann
03.08.2024, 05:29
A few days ago, the stock market was largely in order. It was said that the US Federal Reserve would act in good time. It would lower its key interest rates in September – for the first time after a long series of interest rate increases with which it had fought inflation. The imminent easing of interest rates would allow companies and private individuals to obtain loans more easily. There is therefore little reason to seriously worry about the economy in the USA and the profit prospects of companies.
Then things turned out differently than expected: poor company figures from tech giants like Intel and Amazon dampened sentiment. Investors nervously asked themselves whether they had recently gone too far with the purchase of tech stocks, fascinated by the potential of artificial intelligence in this sector. Disillusionment set in. The geopolitical security situation also raised new concerns; keyword: Middle East conflict.
Alarm about labor market
Stock markets around the world really started to slide when the new US labor market data was released on Friday afternoon Swiss time: There were fewer new jobs in July; unemployment increased. Fears arose that the US Federal Reserve had already failed to loosen its interest rate reins before the economy slipped into a recession. Commentators sounded the alarm: the central bankers now had to boldly lower interest rates. And this despite the fact that brusque interest rate maneuvers in the run-up to the presidential elections in early November are tricky. They could be interpreted as an attempt to influence the election.
The new situation is therefore difficult. What should investors prepare for? What will happen to interest rate policy in the USA, and what will happen to the company results of the tech industry, which has been spoiled for success? Is it now time to flee to safe financial investments, such as gold or US government bonds?
US Federal Reserve called upon
Or is the prominent US economist and Nobel Prize winner Paul Krugman right? He commented ironically on X: The weak labor market data could just as easily have boosted the stock market. After all, the hope of strong interest rate cuts often stimulates the markets. That has indeed often been the case in the past. Among other things, because lower interest rates support the economy and allow companies’ profits to grow more strongly.
Now market participants and experts must first reassess the situation. It is quite possible that the stock markets will recover quickly from the recent scare. Much depends on what the other US economic data turns out to be. And how skillfully the US Federal Reserve communicates its interest rate policy in the coming weeks.
Jan Baumann
Head of Business Department
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Jan Baumann has been working for SRF since 2013 and has headed the business editorial department at Radio SRF since the beginning of 2023. Previously, he worked for around ten years as an editor for the newspaper “Finanz und Wirtschaft”, including as a US correspondent.
