Stocks Rise Despite US Recession Threat as Economy Slows

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Equities surged despite the U.S. economy recording a lower-than-expected 1.1% annualized growth in the first quarter as interest rate hikes weighed on GDP and the threat of recession abated.

After the news, Bitcoin (BTC) fell briefly to $28,748 before rebounding to $28,934.06. Ethereum (ETH) dropped from $1,883 to $1,869.53, later rising to $1,883.40.

Stocks Surge as Recession Threat to U.S. Economy Falls

Major U.S. equities reacted positively to the news, with Dow Jones up 0.3%, the S&P 500 gaining 0.6%, and the Nasdaq Composite climbing 0.9%.

Buoyed by positive earnings news, Meta’s stock is up about 14%, while Amazon, which releases its earnings call after the market close, is up 3% on the day.

A consensus forecast predicted a 2.2% GDP growth as traders adopted a dovish stance, pricing in three interest-rate cuts by the end of 2023. The GDP is also down significantly since last quarter’s 2.6%.

Earlier this week, analyst Noelle Acheson pointed out that the 10y1m yield curve became uninverted. The inverted curve is a recession indicator.

While Bitcoin traded mostly flat after the news, K33 Research suggests it will dovetail with U.S. equities in the weeks ahead amid a series of international banking holidays. 

BTC-30 Day Correlations | Source: K33 Research

The dollar index, which measures the greenback’s strength against other major currencies, has fallen 12% since October 2022.

Barring crypto-specific market events, a stronger dollar in 2022 was sometimes correlated with a Bitcoin price decrease. After the Fed announced further interest rate hikes in August, the dollar index increased, while Bitcoin decreased by 11%.

Before the GDP data was released, the 90-day correlation between BTC and USD was -0.7%. Before that, the dollar index recorded a 12% decline since October.

This relationship suggests that any further decline in the dollar after the GDP results could benefit Bitcoin.

Federal Reserve Predicts Two More Rate Hikes

Markets will also watch the U.S. Personal Consumption Expenditure Index, due on Friday, which the Federal Reserve will use to assess the effectiveness of its rate hike policy on the economy. The central bank will announce its next interest rate increase on May 3.

On Thursday, Federal Reserve chair Jerome Powell suggested two further 25 basis point increases to pranksters impersonating Ukraine’s Volodymyr Zelensky. 

He said a recession was “almost as likely as very slow growth.” 

“What we need is a period of slower growth so that the economy can cool off, so the labor market can cool off, so that wages can cool off. That’s how inflation comes down. That’s the only way we know to bring inflation down. And it can be painful, but we don’t know of any painless way for inflation to come down.”

Source: Zerohedge

CME Target Rate
CME FedWatch Target Rate Prediction | Source: CME Group

The CME FedWatch Tool agrees, assigning an 87.4% probability of an upcoming 25 basis point hike.

For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.


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