Market Volatility Likely to Continue, Warns Economist
Market volatility has been on the rise, and one economist is predicting that this trend is likely to continue in the months ahead. Michael Darda, chief economist and macro strategist at Roth Capital Partners, recently shared his thoughts on the current state of the economy on Yahoo Finance’s Stocks in Translation podcast.
Darda believes that the risk of a more significant pullback or correction in the market is quite high. He pushed back against the idea of a “soft landing” for the US economy, where higher interest rates lead to lower inflation without a major impact on economic growth.
“We’re skating on ice that’s a bit thinner than a lot of people presume,” Darda warned. He highlighted rising unemployment rates and elevated earnings expectations as factors contributing to recent stock market routs.
While it may seem like the economy is heading towards a soft landing, Darda cautioned that this could quickly turn into a recession. He noted that expectations for the economy, corporates, and the stock market have remained at “super high” levels, despite some cracks in the business cycle.
One key indicator that has been spooking markets is the jobs market. In July, the unemployment rate unexpectedly rose to 4.3%, its highest level in nearly three years. While it dipped slightly to 4.2% in August, Darda emphasized that the accelerated rise in unemployment is still a cause for concern.
“4.3% is still an incredibly low unemployment rate level that looks quite good in the historical context,” Darda explained. “The problem is that we’re up to 4.3% from a cyclical trough of 3.4%. These movements and levels suggest that the economy, if still growing, is doing so below its potential growth rate.”
Darda concluded by stating that there is an exceptionally fine line between slow growth and an actual recession. With market volatility expected to remain elevated, investors should brace themselves for potential challenges ahead.
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