MICA RESEARCH】U.S. Stocks Switch to Recession Topics, Crypto May Be Affected

Is the U.S. economy really in recession? The market is worried that corporate profits are not as good as expected

There are two factors that triggered the decline of U.S. stocks and crypto currencies, namely the expected interest rate climbing above 5% and the retail index showing a monthly recession of 0.6%, deepening investors' worries that the Q4 results of 2022, which will be released next January's earnings week, will be poor or even too recessionary. The disastrous results have made investors extra cautious about the current market conditions for fear of stepping on the big mines of the U.S. recession.

Although the data is not good, we think the November retail sales data is a bit paradoxical. The U.S. Department of Commerce said that the recession is due to a decline in spending on Christmas gifts, housing supplies and new cars in December, thus the phenomenon of monthly decline in the past six months. Given the large volume of iPhone sales, it is likely that the November retail sales decline was caused by people not being able to buy IPhones.

Assuming this is the case, the fall in risky assets due to recession concerns may be a mistake, as iPhone shipments have improved significantly in early December due to the epidemic prevention policy relaxation, and retail data is expected to rebound strongly in December.

Compared to the high volatility in the stock market, the crypto market is lacking in interest. This week's withdrawal fiasco has affected market sentiment to a certain extent, with more funds pulling out of centralized exchanges in fear of a repeat of the FTX incident. However, there is still a lot of capital outflow, and as a key liquidity provider, this makes the crypto market even more depressed.

Judging from the Fed's FOMC interest rate meeting, it is expected that there will be no interest rate cut in 2023, and the benchmark interest rate will be maintained at around 5.00% to solve the inflationary pressure. The cycle of interest rate cuts is not expected to begin until 2024 at the earliest.

In the face of rising interest rates, the market for shallow plates such as cryptocurrencies is not too good, and the industry is now in a depressed and fearful environment. Investors should have the intention to hold the currency for more than two years until the industry completes its self-repair and economic conditions become more relaxed, and the rate of increase will eventually come back.