- Fed Chair Powell testified that recent economic data may force more aggressive interest rate hikes
- A historic bond yield inversion influenced by Fed policy signals that a recession is imminent
- A prominent market expert predicts the stock market will crash in 60 days
Economic Data Signals a Market Crash
Financial indicators signal that a major economic reversal will occur sooner than later. The most reliable recession gauge worsened as Fed Chairman Powell reiterated the need for higher interest rates. Fed policy led one prominent market expert to predict a stock market collapse within 60 days. If being forewarned is forearmed, investors should take action now to protect against losses.
The Fed’s interest rate hikes are prompting the economic warnings. Stocks rallied as data showed inflation was leveling off. But that rally was short lived. Recent reports reveal that inflation actually increased. This is sparking fears of more highly aggressive rate hikes. Powell didn’t rule out the increases. Instead, he said the Fed isn’t on a preset path. They are making data driven decisions and there are still important upcoming reports. The US jobs report along with the consumer and price indexes are coming out within weeks.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in remarks prepared for delivery before the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”1
Powell’s testimony about rate hikes sent a recession warning bell ringing. The 2- and 10-year Treasury’s yield curve is a market-based indicator of economic health. The curve inverted, meaning short term bonds are outperforming long term ones. This indicates a lack of investor faith in the economic future. Inverted yield curves have preceded almost every recession.
The curve first inverted back in April. Now, it has plunged into triple digits below zero, down 106.7 basis points, a level not seen since 1981. And don’t forget, tight monetary policy to fight mounting inflation triggered the 1981-82 recessions. There is typically a one-year lag between the beginning of the curve inversion and the beginning of a recession. Which means we are right on schedule for a recession to hit.
60 Days to Collapse
The time frame syncs with the latest prediction from former Lehman Brothers VP and Bear Traps commentator Larry McDonald. He sees the stock market crashing within a couple of months. He said, “Our 21 Lehman systemic risk indicators that look at equity and credit point to one of the highest probabilities of a crash in the stock market looking out 60 days.”2
A massive failure to hit S&P earnings estimates will spark the crash. Continued high interest rates and rising unemployment will cause the fall in corporate earnings. McDonald argued that for every 1% increase in rates, $50 billion is taken out of the pockets of middle-class families. That’s because such things as housing and car payments go up steeply with each hike.
McDonald hopes that average American investors recognize there are options other than stocks and bonds. One such option is precious metals. Gold and silver hold their value as interest rates rise and stocks collapse. For more information how a Gold IRA can secure your portfolio before a market crash, contact us today.