The US economy is moving in paths contrary to expectations, stock prices are achieving new highs, and Apple is reaching three trillion dollars as a market value. What is happening here? Where is the expected economic recession?
Economic growth in the first quarter of 2023 came at 2 percent, as growth in real gross domestic product, and this is reasonable growth in light of the high interest rates in which the federal funding rate stands at 5.25 percent, which is the measure on which interest rates depend. The expected economic recession, which most estimates last year indicated that it would occur in the beginning to the middle of 2023, did not materialize, although there are those who expect it to occur in the second half of 2023.
A number of current signs and indicators do not indicate an economic recession, despite expectations of further interest rate hikes in upcoming meetings of the Federal Reserve Board, and despite some central banks raising interest rates, such as Canada, the European Central Bank, and the United Kingdom. Looking at the growth of the US economy, we find that it was growing at moderate and expected rates of around 2 percent as a real growth free from the effects of inflation until the Corona virus hit the world’s economies, and the US economy declined by 33 percent in the second quarter of 2020, then it began with a rapid recovery as a result of pumping hundreds of billions of dollars in the arteries of the economy, to rise again at a higher rate than before, as quarterly growth rates of more than 6 percent appeared in 2021.
Stock prices were affected at the beginning of 2022 as a result of several geopolitical factors and as a reaction to the beginning of raising interest rates. There was a decline in economic growth by 1.6 percent, and then by 0.6 percent for the first and second quarters of 2022, which is a phenomenon that is one of the most significant measures of economic recession. However, the economic recession is measured by several other factors.
First of all, it should be noted that the effects of the economic recession on people are very clear, as they are the times when the individual feels difficult to get a job, and whoever has a job feels difficult to obtain the annual allowance, and the opportunities for overtime work and training courses decrease, and so on. In the meantime, commercial establishments retreat from implementing their ambitious plans and postpone the implementation of some projects, due to expectations of a decrease in demand for products and services, on the other hand, due to high financing costs that may change the feasibility of many projects.
These symptoms of inflation have not yet appeared in the United States, but there is a great demand for labor in some areas such as hospitality and travel, with remarkable stability in other jobs, and a decline in unemployment aid requests, with low levels of unemployment, which now stand at historically low levels. at 3.7 per cent. There is also a measure of demand for durable goods that are used for several years and are not like short-term consumer goods, as last May data appeared for new orders amounting to $ 288 billion, an increase of 1.7 percent. This indicates a desire to buy these durable goods and a decline in people’s appetite towards consumption and spending.
And if we look at bond yields, they also indicate expectations of a rise in interest in the short and medium term, as the yield on ten-year government bonds stands at 3.85 per cent, and it has been on a continuous rise for about two months, and indicates the impossibility of an economic recession, which naturally requires a reduction in interest rates. benefit to revive the economy. These and other signs do not indicate an imminent economic recession, which is contrary to expectations in light of the US and global economic conditions.
As for when looking at stock prices, they come in violation of all expectations, not because they did not decline, but rather because they achieved great rises without caring about what might come from a recession. We find that the main index of the US markets, the S&P 500 index, is up 14.5 percent since the beginning of the year, and it is the index whose annual performance is seen at around 9 percent as a very appropriate return. As for the index of the top 100 technology companies, the Nasdaq 100 index, it has achieved since the beginning of the year a growth of nearly 40 percent until yesterday, and one of the components of this index is the shares of Apple, whose value has now reached three trillion dollars, and that is the highest value of any company in the world now. and ex.
How can you explain what is happening in the United States? In terms of the movement of stock prices, it is said that the strongest future indicators of the economy are stock movement indicators because of the large number of economic and financial analysts who deal in stocks and who have huge investments that interest them, so they do their best to study, analyze and scrutinize the data and future expectations that fall into their hands to be able to take appropriate decisions. So it is clear that their decisions regarding stocks in general, and technical stocks in particular, indicate significant growth in the medium and long future.
The other explanation for the cohesion of the stock markets may come from the possibility of future inflation and the decline in purchasing power, in the sense that the rise of many companies is caused by the decline in the purchasing power of the currency, which is the phenomenon seen in many other areas and in the shares of companies of countries that have a decline in the exchange rate of their currency against other currencies. This phenomenon is similar to what happens to real asset prices such as gold and real estate when there is a decline in the currency exchange rate. Gold rises when the dollar falls, as a result of the fact that gold is priced in dollars, and quickly regains its value if the decline was merely a decline in the currency exchange rate.
If this theory is correct, then the rise in the prices of shares of powerful companies such as “Apple” and others is nothing but a reaction opposite to the collapse of the dollar’s exchange rate against other currencies and against gold in particular. Looking at the dollar index, we find that it has been in a strong decline since the peak of 115 points in September 2022, which is the period that coincides with the bottom of stock prices, until it has now reached the limits of 103 points.
2023-06-30 20:58:59
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