It’s been a hairy few weeks for US equity markets.
The S&P 500 moved into “bear market” territory — 20 per cent down from its peak — during Friday’s trading session, but managed to avoid closing at those lows. The index is still down more than 18 per cent year to date and will likely follow the Nasdaq Composite into an official bear market at some point in the coming weeks.
The last time US equities went into a bear market was the first quarter of 2020 at the start of the Covid-19 pandemic. That did not last long, however, as the Federal Reserve cut interest rates to almost zero and embarked on a massive quantitative easing cycle to support the economy. Meanwhile, the government put money in the pockets of consumers and businesses through various relief and stimulus measures.
The Fed is unlikely to come to the market’s rescue this time around, however. Part of the reason for the recent sell-off in equities has been the re-pricing of interest rate expectations as the Fed has sounded increasingly hawkish in recent weeks.
At the start of the year, the market was pricing only three 25bp rate increases, or 75bp in total, over the course of 2022. We have already had 75bp basis points in rate rises since March, and several Fed speakers have indicated they would like to see the Federal Funds rate rise to at least the neutral level, estimated at 2.5 per cent, before the end of this year. This implies at least another 150bp in rate increases by December.
The market is pricing a more aggressive 175bp in rate hikes over the rest of this year, which would take the upper limit of the Fed Funds rate to 2.75 per cent in December from 0.25 per cent in January. An aggressive reduction in the size of the Fed’s balance sheet would tighten financial conditions even further.
But higher borrowing costs are not the only factor driving equity prices lower; markets are becoming increasingly concerned about the likelihood of a recession in the US over the next 18 months. The US economy shrank on a quarter-on-quarter basis in the first quarter of 2022, although this was largely brushed off as due to technical factors. Imports increased as port disruptions eased and inventories, which firms had aggressively built up in the fourth quarter of 2021, declined in the first quarter of this year.
The US consumer was in a strong position, it was argued, and would continue to drive economic growth, albeit at a slower pace, as the Fed raised borrowing costs.
There is plenty of data to support this view: the unemployment rate is at 3.6 per cent, almost the pre-pandemic low; wage growth is strong; household balance sheets are in good shape; and there are still excess savings that would allow consumers to maintain spending even as inflation erodes purchasing power.
However, the quarterly earnings reports of large US retailers including Amazon, Walmart and Target, suggest that there are cracks under the surface with respect to the US consumer.
While retail sales growth remains solid, rising 0.9 per cent month-on-month in April, consumers appear to be reducing spending on discretionary items such as homewares and clothes, and spending more on essential (and lower margin) items such as groceries, as higher food and energy prices affect spending decisions. Moreover, credit card spending is on the rise, according to some US banks.
While a US recession does not appear to be anyone’s base case scenario at the moment, growth is expected to slow sharply by the end of this year as the Fed’s rate rises start to bite. This is necessary for inflation to slow, which is the Fed’s main goal this year.
Policymakers and most analysts have argued that there is a path to a “soft landing” where US growth slows enough to reduce inflationary pressures, without pushing the economy into a recession. But given that interest rates are a relatively blunt tool and can take months to feed through to the real economy, there is a non-negligible risk that the Fed moves too far too fast and the world’s largest economy starts to contract in 2023.
Killing of Qassem Suleimani
UAE currency: the story behind the money in your pockets
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Types of bank fraud
1) Phishing
Fraudsters send an unsolicited email that appears to be from a financial institution or online retailer. The hoax email requests that you provide sensitive information, often by clicking on to a link leading to a fake website.
2) Smishing
The SMS equivalent of phishing. Fraudsters falsify the telephone number through “text spoofing,” so that it appears to be a genuine text from the bank.
3) Vishing
The telephone equivalent of phishing and smishing. Fraudsters may pose as bank staff, police or government officials. They may persuade the consumer to transfer money or divulge personal information.
4) SIM swap
Fraudsters duplicate the SIM of your mobile number without your knowledge or authorisation, allowing them to conduct financial transactions with your bank.
5) Identity theft
Someone illegally obtains your confidential information, through various ways, such as theft of your wallet, bank and utility bill statements, computer intrusion and social networks.
6) Prize scams
Fraudsters claiming to be authorised representatives from well-known organisations (such as Etisalat, du, Dubai Shopping Festival, Expo2020, Lulu Hypermarket etc) contact victims to tell them they have won a cash prize and request them to share confidential banking details to transfer the prize money.
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
The specs
Engine: 3.8-litre twin-turbo flat-six
Power: 650hp at 6,750rpm
Torque: 800Nm from 2,500-4,000rpm
Transmission: 8-speed dual-clutch auto
Fuel consumption: 11.12L/100km
Price: From Dh796,600
On sale: now
UAE currency: the story behind the money in your pockets
Killing of Qassem Suleimani
Armies of Sand
By Kenneth Pollack (Oxford University Press)
Fire and Fury
By Michael Wolff,
Henry Holt
Biog
Age: 50
Known as the UAE’s strongest man
Favourite dish: “Everything and sea food”
Hobbies: Drawing, basketball and poetry
Favourite car: Any classic car
Favourite superhero: The Hulk original
Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
Heather, the Totality
Matthew Weiner,
Canongate
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Past winners of the Abu Dhabi Grand Prix
2016 Lewis Hamilton (Mercedes-GP)
2015 Nico Rosberg (Mercedes-GP)
2014 Lewis Hamilton (Mercedes-GP)
2013 Sebastian Vettel (Red Bull Racing)
2012 Kimi Raikkonen (Lotus)
2011 Lewis Hamilton (McLaren)
2010 Sebastian Vettel (Red Bull Racing)
2009 Sebastian Vettel (Red Bull Racing)
WHAT IS A BLACK HOLE?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed
More from Rashmee Roshan Lall
MATCH INFO
Uefa Champioons League semi-final, first leg:
Liverpool 5
Salah (35', 45 1'), Mane (56'), Firmino (61', 68')
Roma 2
Dzeko (81'), Perotti (85' pen)
Second leg: May 2, Stadio Olimpico, Rome
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
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'How To Build A Boat'
Jonathan Gornall, Simon & Schuster
WOMAN AND CHILD
Director: Saeed Roustaee
Starring: Parinaz Izadyar, Payman Maadi
Rating: 4/5
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