The current period marks a significant turning point for the global economy. Much like uncovering the core of any major event, we remain unaware of the challenges at hand today. However, once this period has passed, we will better comprehend and clearly interpret what transpired.
Economic Warnings Arise
With the onset of Trump’s administration, a distinct new phase was initiated, with the effective tariff rates in the US advancing beyond 17%. We have witnessed a series of significant events, including the governmental acceptance of cryptocurrencies in the US, regulations, and other developments. This period symbolizes a significant economic transformation, with three primary signals visible now.
Despite global tariffs, the US stock markets exhibit robust strength. Recent notable announcements by Trump regarding Apple indicate a new level of stability, with valuation peaks that were initially at 1 trillion dollars now reaching 4 trillion dollars. Companies strive to surpass the 4 trillion-dollar mark.
The Kobeissi Letter recently highlighted this growth, noting that the largest 10% of US stocks now comprise a significant portion, at 76%, of the US stock market. Comparatively, during the 2000 Dot-Com Bubble’s peak, the largest 10% held a share of approximately 73%.
“This figure officially exceeds the previous record set before the Great Depression of the 1930s. Comparatively, in the 1980s, this figure was below 50%. Meanwhile, the ten largest stocks in the S&P 500 now constitute 40% of the index’s market value, proving we are witnessing history.”
Significant Earnings
About 63% of S&P 500 companies exceeded earnings expectations by at least one standard deviation, marking the highest rate in four years. TKL emphasized that the last quarter was the best in the last 25 years. Excluding the post-pandemic recovery, we are on the brink of an unprecedented scenario not seen since the dot-com bubble era, as mentioned in the stock share section.
The strength of earnings momentum is substantial, and if post-pandemic earnings are to be surpassed, it suggests even greater outcomes ahead. However, according to the data from the last 25 years, earnings appear to be in a stage suitable for a breather.
Employment Concerns
Employment figures signal major upcoming events in the economy. Trump expressed outrage after recent revisions, claiming conspiracies due to enormous deviations. Employment is weakening, prompting the Fed to possibly begin rapid rate cuts. TKL shared the following insight with the accompanying graph:
“The US job market is flashing warning signals: Nonfarm employment growth fell to 0.97% in July, marking the lowest level since 2020 annually. This represents three consecutive months of near 1% annual growth.
Meanwhile, the 3-month average employment change has fallen to +35,000, the lowest since June 2020, barring 2020. This indicates the weakest job market in 15 years, barring previous economic cycles where such growth declines signaled recessions.
Will history repeat itself?”
Cryptocurrencies
The three sets of data indicate that the conditions are massively conducive for recession and market crash. It implies that we have reached a genuine peak, with ample convincing evidence at hand. Following the anticipated crash in the US stock markets, lasting several quarters, there are numerous reasons to expect a series of substantial justifications.
What will cryptocurrencies do during this process? Should a recession or crash occur, they will likely weaken. However, if the Fed intervenes swiftly and perhaps prematurely with rate cuts, cryptocurrencies may experience a robust upward momentum.
In the short term, the outlook is not a major concern, but Poppe suggests a return to ATH levels is possible if 114,800 dollars is maintained as support.
