US stocks sold off on Friday following weak August jobs data. But one economist predicts market volatility is likely to continue in the coming months.
“I think we’re probably in an environment of high volatility right now,” Michael Dalda, chief economist and macro strategist at Roth Capital Partners, said on Yahoo Finance’s “Stocks in Translation” podcast. Ta. “The risk of further significant withdrawals or adjustments is very high.”
Mr. Dalda pushed back against the idea that the U.S. economy would achieve a “soft landing,” where higher interest rates lead to lower inflation without significantly hurting economic growth.
“We’re skating on a little thinner ice than a lot of people realize,” he said.
Darda pointed to rising unemployment and rising earnings expectations, both of which contributed to the stock market crash seen in August and early September.
“It’s not unprecedented for there to be a period of economic slowdown that looks like a soft landing, and then a recession eventually materializes,” he said. “This is in some ways unexpected now, as many people have been fooled into thinking that a soft landing in the business cycle will be a permanent state. It reflects.”
“However, there are some cracks in the business cycle,” he warned, noting that expectations for the economy, businesses and stock markets remained at “super high” levels.
But it wasn’t just the income. The job market also tells a special story.
July employment statistics released last month surprised the market by unexpectedly increasing the unemployment rate to 4.3%, the highest level in nearly three years. The rise also led to close monitoring of the recession indicator known as the SAHM rule.
Mr Darda warned that although the unemployment rate fell slightly in August to 4.2%, the accelerating rise in the unemployment rate was still “slightly concerning”.
“4.3% remains an incredibly low level of unemployment and looks quite good in historical context,” he said. “The problem is that it’s gone from the cyclical trough of 3.4% to 4.3%.”
“These movements and levels indicate that, if the economy is still growing, it is growing below trend or below its potential,” he said. “There’s a very fine line between that and an actual recession.”
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