Ep 47: The Recipe for a Market Sell-Off: Carry Trade, SAHM Rule, Recession Fear

The stock market has been having quite the week since our last episode on the Fed’s decision to NOT do a rate cut and the resulting effects of the not-so-great unemployment numbers that came out last Friday.

Recipe for disaster?

Is the stock market crashing? Why was there a sell-off and what is a market sell-off? And is this a good time for us self-directed investors to invest more, like, is the stock market on sale?

What were the sell-off ingredients? 

• The Carry Trade (Yen Got Stronger)

• The Sahm Rule (Recession Indicators)

• Recession FEAR (Emotional Investors)

Sell-Off Decline: Pull-Back, Correction, Bear Market?

We all know that the stock market recently tanked and there was a huge sell-off. Was this a pull back or a correction, are we in a bear market. 

The difference is a decline of:

Pull back = 5-9% 

Correction = 10 -19% (Stock Market Is Currently Here)

Bear market = >20%

✨The recent turbulence was the most severe since the 34% decline that occurred in Q1 2020.

✨ Market corrections happen almost every year. Since the early 1980s, there's been a greater than 5% drawdown in the S&P 500 Index in every year but two (1995 and 2017).

✨ The stock market has historically recovered quickly from corrections. The average time to recovery from a 5%-10% downturn is three months. The average time to recovery from a 10%-20% correction is eight months.

✨80% of corrections since 1974 have not led to a bear market.

✨ There's a 73% probability of a double rate cute (.50%)

How do we know we are in a recession? 

Great Analogy: ⁠https://www.tiktok.com/t/ZTNgX6jUW/⁠

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Related Episodes:

Ep. 46) ⁠Fed Update: What is Event Risk? Could it Trigger a Sell-Off?⁠

Ep. 45) ⁠What is Market Breadth & Concentration Risk? Why Should YOU Care?⁠

Ep 18):⁠ Understand the Yield Curve, Treasury Bonds, and Stock Market Impacts⁠

Ep. 15)  ⁠Are we in a recession? What and who defines a recession?⁠

Ep. 14) ⁠What’s going on with Inflation?