Monday, 5 August 2024

Who the heck is Sahm Rule? 🥸

And how bad is it going to get?
 
   
     
   
 
AUGUST 5, 2024
   
Alright, I’ll admit it…

Until today, I hadn’t ever heard of the “Sahm rule.” But it’s fascinating.

The Sahm rule that everyone is so up in arms about is named after former Federal Reserve economist and White House policy advisor Claudia Sahm…
 
 
She seems pleasant. So why is everyone blaming her for the market collapse today? 

Well, jokes aside, it’s obviously not so simple. 

See, Miss Sahm came up with a simple rule for labeling “recessions”: the initial phase of a recession has started when the three-month moving average of the U.S. unemployment rate is at least half a percentage point higher than the 12-month low. 

If that rule is true, and it has been accurate historically, then we officially entered a recession on Friday when the weak jobs report dropped. 

But, according to CNBC, Miss Sahm herself is not convinced. She said on Friday that: “We are not in a recession now — contrary to the historical signal from the Sahm rule — but the momentum is in that direction. A recession is not inevitable and there is substantial scope to reduce interest rates.”

(It should be noted, since CNBC will not note this, that Sahm served under the Obama Administration, and therefore might have political motivations for softening the blow of her own rule in the heat of a fraught election cycle.) 

In any case, whether we are or we are not in an official recession, things are pretty ugly in the markets right now: 
 
 
Very little green on that screen. 

So, understandably, a lot of traders are panicking right now. You might be among them.

Take a deep breath, because there are a few things to consider:

First, Geof Smith reminds us that the SPY is still way up year-to-date.
 
 
We have to keep things in perspective. The market is not falling to pieces, this isn’t 1929.

It’s a really rough day in a market that has still been overall positive on the year.

Also Graham provided some really interesting research he found today specifically regarding the Sahm rule: 
 
 
He added: “I also have to think that we're getting a pretty over reaction to the jobs report, but there's definitely a lot of uncertainty in the air. I have to imagine we bounce from these levels (even if the trend turns bearish).” 

A bounce higher certainly seems nice after a day like today.

But here’s the thing, and remember, we talked about this last week…

You can’t let one loss or one bad day in the markets overwhelm you. You just need to get back up and start swimming again.

Losses can and will happen. It’s how you recover from the losses that determine whether you make it as a trader or not! 

Keep your heads up,

Stephen Ground
Editor-in-Chief, ProsperityPub

Editor’s Post Script: Have you seen Geof Smith’s “Oklahoma Trade” in action yet? If you’re worried about traditional trading and mainstream stocks in uncertain markets like these, you need to check out his unique approach to weekly income using under-the-radar assets. It’s really cool and I can’t wait to get into one of these trades myself!
   
 
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