Finance

The US economy may be on 'thinner' ice than investors think

Published

2 hours ago

September 5, 2024

The US economy may be on 'thinner' ice than investors think

Investors are increasingly confident the US economy will achieve a “soft landing,” a scenario in which higher interest rates lead to lower inflation without a major hit to economic growth.

On the surface, it appears all signs point to that outcome. Inflation has eased. The economy is still expanding. Consumer confidence has risen. Retail sales are healthy. Corporate profits remain strong. And stocks continue to hover at record highs, with the Federal Reserve on tap to cut interest rates as soon as its next meeting on Sept. 18.

But one strategist warned on Yahoo Finance’s “Stocks in Translation” podcast that there are cracks under the surface.

“We’re skating on ice that’s a bit thinner than a lot of people presume,” said Michael Darda, chief economist and macro strategist at Roth Capital Partners.

Darda pointed to a rising unemployment rate and elevated earnings expectations, both of which contributed to the stock market routs seen at the start of August and September.

“It’s not unprecedented to have a slowdown period that looks like a soft landing, and then a recession ends up taking shape,” he said. “That’s sort of unexpected now because many have been lulled into this idea that the soft landing is going to be a permanent state of affairs for the business cycle. Equity market valuations reflected that coming into the summer.”

“But there’s been some cracks in the business cycle,” he cautioned, noting expectations for the economy, corporates, and the stock market have remained at “super high” levels.

To that point, the S&P 500 shed 2% on Tuesday, dragged down by the tech sector after Nvidia (NVDA) earnings didn’t deliver enough of a beat to satiate investors’ appetites. Stocks seesawed in the subsequent days as markets struggled to find their footing following the sell-off.

“What’s unfolding now actually makes a lot of sense to me,” Darda said of the pullback. “We’re seeing companies that had been soaring off of repeated beats on either revenues or earnings not do so well in this most recent period.”

The recent drawdowns point to how the current market — one in which investors consistently chase hot stocks and hot areas like artificial intelligence — can be a “dangerous” game, according to Darda.

“What that tells me is that the expectations have just gone up so much. It’s impossible to beat expectations indefinitely. Eventually they’ll catch up,” he said. “We’re in a bit of a frenzy here. And if things start to go wrong, whether it’s the earnings not living up to expectations or the business cycle faltering, that’s when you see stock markets roll over in potentially a material fashion.”

‘Choppy waters’

But it hasn’t just been earnings. The jobs market is also telling a particular story.

Last month, the July jobs report spooked markets after unemployment unexpectedly rose to 4.3%, its highest level in nearly three years. The move higher also triggered a closely watched recession indicator known as the Sahm Rule.

The rule, which has accurately predicted recessions 100% of the time since the early 1970s, measures the three-month average of the national unemployment rate against the previous 12-month low. It’s triggered when unemployment rises 0.5% from that level.

Cracks in the markets and the US economy are beginning to show, according to one strategist (Courtesy: Getty Images) — Cracks in the markets and the US economy are beginning to show, according to one strategist. (Getty Images) (caitlin_w via Getty Images)

Traders instantly panicked that the economy was slowing more than anticipated. But then the debate ensued: Why was unemployment suddenly seeing an uptick?

Economists and strategists began to lay out the possible scenarios, including a theory that above-trend immigration is driving up labor force participation rates, therefore pressuring unemployment as more workers enter the jobs market. This eased investor fears as stocks rebounded to finish August with wins across all three major indexes.

But Darda said the rise in unemployment is still “a bit concerning.” And he’s not completely sold on recent bullish commentary that higher unemployment doesn’t really matter as long as the economy keeps growing.

“4.3% is still an incredibly low unemployment rate level that looks quite good in the historical context,” he explained. “The problem, if there’s a problem, is that we’re up to 4.3% from a cyclical trough of 3.4%.”

“Those kinds of movements and the level tell us that the economy, if it’s still growing, is growing below trend or below the growth rate of potential,” he said. “There’s an exceptionally fine line between that and an actual recession.”

Investors will receive another update on unemployment Friday with the August jobs report on deck. Darda said that report could likely lead to even more market volatility in the weeks and months ahead.

“I do think we’re probably in an environment now where volatility is going to stay elevated,” he surmised. “The risk of a more material pullback and/or correction is quite high.”

Ultimately, his view is one of caution: “With what we saw for the last two years with this market backdrop, from these valuation levels, and based on where I think we are in the business cycle, I think we’re going to be in choppy waters for a little bit.”

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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Related Topics:Economic growth Expectations.Michael Darda soft landing stock market unemployment rate

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Finance

Klarna Considers Share Sale Ahead Of Listing In US

Published

9 hours ago

September 5, 2024

Press Room

Klarna Considers Share Sale Ahead Of Listing In US

Klarna Group, Europe’s leading payment solutions disrupter, is exploring a secondary share sale ahead of its 2025 initial public offering in the US. Backed by Sequoia Capital and Softbank, the 19-year-old company is currently in talks with investors to assess the level of interest; Goldman Sachs, Morgan Stanley, and JPMorgan are reportedly advising.

Stockholm-based Klarna is believed to have a valuation of about $20 billion in advance of the IPO. Its status as a rising star in Europe’s fintech firmament took it to a valuation of $31 billion in March 2021, increasing to $45.6 billion in July of that year. The huge uptick was driven by a 40% growth in revenue to $1 billion in 2020 and made Klarna Europe’s most valuable startup. Revenue leveled off as the Covid-19 pandemic waned and normal commerce was slowly restored, however, Klarna’s valuation subsided to $6.7 billion in July 2022.

The planned listing will shape the next phase in Klarna’s global expansion. The US has become Klarna’s single biggest market by revenue for its buy-now-pay-later payments concept. Its core online and digital payment solutions are developed and tested in-house through Klarna Bank, a lender fully licensed by Sweden’s Financial Supervisory Authority since 2017 and active in 45 markets.

The bank supports the parent company’s artificial intelligence-powered global payments network and shopping assistant business models. Klarna’s network comprises 550,000 global retailers and leading brands including Uber, Airbnb, H&M, Sephora, Macy’s, and Nike. Thus far, CEO Sebastian Siemiatkowski has taken a cautious and pragmatic approach to the IPO; market conditions had to improve first, he told reporters last year. The US IPO is now expected to proceed either in the first or second quarters, and observers expect it to be one of 2025’s largest debuts.

Finance

XTCC Partners with FINMAAL DMCC to Offer Carbon Offset Opportunities for Financial Services Customers

Published

16 hours ago

September 5, 2024

Press Room

XTCC Partners with FINMAAL DMCC to Offer Carbon Offset Opportunities for Financial Services Customers

London, Dubai, Sept. 05, 2024 (GLOBE NEWSWIRE) — XTCC, a firm specialising in tradable financial instruments tied to high integrity carbon credits, today announces a strategic partnership with Finmaal, a premier e-marketplace service provider focused on fintech and insurtech solutions, headquartered in Dubai, UAE. This partnership empowers Finmaal customers to elect to offset Greenhouse Gas (GHG) emissions directly associated with the Finmaal products they purchase through its platform, marking a significant step forward in the integration of sustainability within financial services.

XTCC’s expertise in the global carbon market and experience building financial products underpinned with high-quality carbon reducing projects will be leveraged to create offset calculations and products that can be accessed seamlessly by Finmaal’s diverse customer base. This collaboration aligns perfectly with XTCC’s mission to embed environmental sustainability into financial solutions, enabling individuals and businesses to actively reduce carbon footprints.

“We’re thrilled to partner with Finmaal, a company that shares our commitment to sustainability,” said XTCC CEO, Seth Elliott, “Through this collaboration, customers purchasing financial products, such as insurance and banking, will now have the option to offset their estimated carbon emissions during the transaction. This integration not only allows customers to see the specific impact of their choices but also empowers them to neutralise their carbon footprint more effectively. This partnership is an important step in XTCC’s strategy to enhance the inter-relationship between capital markets and the natural world.”

Muhammad Ashfaq-Ur-Rehman, CEO of Finmaal, added “As an ethical and innovative company, Finmaal is excited to partner with XTCC to offer our clients a straightforward way to contribute to global sustainability efforts, linked directly to their financial products and services. For example, we will be able to estimate a vehicle’s annual carbon emissions over time and give purchasers the option to offset these at the point of sale. This is more than just ticking a box; it’s about offering tailored, actionable steps toward carbon neutrality, integrated into the financial services they already use.”

By leveraging Finmaal’s advanced technology and customer engagement strategies, this collaboration will ensure that users are both informed and equipped to take advantage of the carbon offset opportunities available. Both companies are committed to promoting sustainability in financial services, recognizing that integrating carbon offsetting into everyday financial activities is a crucial step toward global environmental responsibility.

-ENDS-

Contact

XTCC

Tina Kane
The Realization Group
tina.kane@therealizationgroup.com

Seth Elliott, CEO

seth@xtcc.investments

Finmaal

info@finmaal.com

About XTCC
The asset class for the net zero world XTCC is the world’s first stock market quoted investment ecosystem for high-integrity carbon credits sourced from verified, audited projects including renewable energy, nature-based solutions and blue carbon.

Investment is essential to bridge the multi-trillion-dollar gap in climate finance. XTCC has created financial instruments that, for the first time, establish fair market value as a reference for high-integrity carbon credits and provide capital markets with an ecosystem of financial instruments that enables liquidity to flow to the communities where it is most needed.

About Finmaal

Established in 2018 in Dubai, Finmaal is a leading fintech marketplace that combines cutting-edge technology with a deep focus and strong emphasis on financial literacy. Our mission is to empower individuals and businesses with the tools and knowledge they need to thrive in the ever-evolving financial landscape.

Finmaal leverages modern technology and embraces the latest trends to stay ahead of the curve. By harnessing the power of data, artificial intelligence, and automation, we drive innovation, streamline processes, and provide actionable insights that fuel informed decision-making.

With over 200,000 customers and in partnership with renowned insurance companies, Finmaal has established itself as a trusted name in the industry. Our wide range of offerings, including data science, market intelligence, intelligent automation and product design and development, are reshaping the way people interact with the world of finance. Our integrated platform provides seamless access to comprehensive solutions that cater to the diverse needs of our clients.

Find out more here.

CONTACT: Tina Kane The Realization Group tina.kane@therealizationgroup.com Seth Elliott, CEO seth@xtcc.investments

Finance

Michigan high school students now required to take personal finance course to graduate

Published

23 hours ago

September 4, 2024

Press Room

Michigan high school students now required to take personal finance course to graduate

MONROE, Mich. (WTVG) – There is a new graduation requirement for Michigan high schools. What started as an elective course is now required for students to get their diplomas.

High school students in Michigan will now be required to take a financial literacy course in order to graduate and help them get ready for life after graduation.

Interest rates, using credit and investing are all things that are common terms for adults. But now, they’ll become familiar to high schoolers in Michigan, too, as a financial literacy course is now a requirement for graduation.

“You see so many students graduate from high school and go to college and they get themselves in debt. They don’t realize how important a good credit score is for future lending to get better interest rates. So we really try to impress that upon the kids how important it is to start out with a strong financial foundation right from the get-go,” said Anne Knabusch, CTE business teacher at Monroe High School.

Her students learn how to make a budget, create net worth statements and write a check.

When asked if Joshua Sutton, a senior at Monroe High School, knew how to do any of that before he took the class, he replied: “Nothing. I didn’t realize how much actually went into it.”

But now, Sutton said he feels more prepared on how to balance his money.

“I got a job a little bit before I started taking her class. I was saving some, but not a whole lot. And then after taking her class and learning you need to have a backup just in case, it’s helped me a lot to save more,” said Sutton.

Maci Willey, a senior at Monroe High School, said it had the same effect on her.

“Without it, I would be clueless. I feel like everybody needs the opportunity to experience that, go through it so they know what the real world is like. You’re not gonna be under your parents anymore. You need to know how to do this stuff.” said Willey.

Monroe schools leaders said this is setting Michiganders up for future financial success.

The school has also partnered with Monroe Community Credit Union to host a financial reality fair for juniors at the end of the school year

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