Are We In A Recession? - Current Rally Just A Bull Trap?

Since last week it is finally official: The US economy is in a recession. It was announced that the second quarter in a row the US economy did not grow which is mirrored in a negative GDP once again. But is the US really in a recession? Many experts are saying otherwise and even politicians are saying that only looking at the GDP is not enough to determine whether an economy is in a recession. After all, the stock market as well as the crypto market shot up after getting this news. So what is the truth? This is what we will try to discover together in this article. We will take a look at some factors and also talk about the current crypto situation.

Are We In A Recession?

Let’s try to answer the most severe question of them all: are we currently in a recession? Well, if we go by the academic definition, we are. This definition says that whenever an economy has a negative GDP twice in a row, this economy is considered to be in a recession. Like said in the intro: there are many other factors to take into consideration.

First of all, let’s talk about the unemployment rate. Usually, when a recession is happening the unemployment rate goes up. Currently, this is not the case. The number of employed people is very high and the number of job vacancies is not getting any lower. Many companies are having problems finding qualified people to fill the open jobs due to the great resignation that is still happening. Thanks to the pandemic, many people realized that they can have a great job from home and not commute every day for 2.5 hours from and to work. Therefore, many positions that require to be on-site are currently not filled.

On the other hand, big tech companies like Tesla or Amazon are laying off people. It is a very interesting job market out there with many niches to cover. But the general trend is that the unemployment rate is still very low which is why many people are not thinking that the economy is in a recession yet.

Another indicator for a recession are falling cooperate profits. When ever an economy is going down the profit margins of the companies are getting lower. This is causing a downwards spiral, where the companies are laying off more people, which leads to them getting less productive which also causes them to lose more profits again. This is currently not the case. Like we already mentioned, most companies are trying to find new employees rather than laying them off. Furthermore, the recent quarterly numbers are showing that the profit margins of the big companies are certainly not that down. This also explains the recent stock market rally where investors liked the numbers that they saw.

Last but not least we need to talk about the current bottlenecks that the economy is still experiencing in the supply chain sector. Due to the fact that a big part of the supply chain is located in China and China has still a crazy COVID policy, the ports and productions plants are very heavily compromised. Some cities even still have major lock downs which obviously does not help in the supply chain regard. This could be an important indicator of why we could see more of a recession soon. Nevertheless, despite the bottlenecks the economy is still doing a relatively good job and whenever these bottlenecks are finally released the economy could see a big relief in this regard as well. All of these factors are not really indicating that we are currently in a recession. With that being said, I would be very carefully to be to optimistic, because of the upcoming winter and the Russia-Ukraine war still going on. Not only that but there is currently a very low consumer confidence that many people are overlooking as well. This could lead to less demand in products which would certainly not help the economy.

Crypto Rally

So with these mixed factors in mind, why did the crypto market and especially the stock market moved into such a crazy rally after last weeks announcements? Well, first of all these announcements should be considered very bearish. After all, the FED raised interest rates for another 75 basis points and the negative GDP was not helping.

Well the answer is easy. Investors were expecting both of these news and because the only thing that investors like other than money is certainty, the expected announcements were very bullish. The mentioned announcements were already priced in and when the they came out, paired with the good tech numbers, the investors felt very safe. Furthermore, there is the hope that the FED will calm down with their rate hikes, just because the recession news might already cool inflation down by itself. This could lead to a reconsideration by Jerome Powell and friends.

Another very bullish news for crypto is that Ethereum’s upgrade to proof of stake finally has a date: 19th of September seems to be the set date, and with only one and a half months to go we could see a big rally in this regard as well. It will be very interesting to see whether ETH can hit the expected 3k ot whether the “sell the news”-event will come true and many ETH holders will finally drop their bag into the market. I think that long term, Ethereum has still great potential, just because it is the biggest blockchain project out there and because it has already proven itself next to Bitcoin.

Conclusion

To conclude this article I want to say a few thoughts. What we are seeing right now is probably a very optimistic bull trap. In a few months time we could see the cooling down of the economy and the expected bad times that many pessimists are drawing onto the wall. I am sure we will not see a big continuation of this current rally and we will not see new All-Time-Highs in crypto projects any time soon. In my eyes this is good, because it gives us time to accumulate more of the valuable assets and could help us in the long run extremely. With that being said, I wish you ‘all a great start into this week!

Published by ga38jem on
Steemit
On 2nd August 2022