Investors Fearful After IMF Warning Today

The stock market crash that started last week is getting worse. The Russell 2000 has already given up all of its gains for the year, and the Dow Jones Industrial Average is very close to turning negative on the year also. The stock market crash of 2024 deepened after a rare warning from the International Monetary Fund was given to the United States. What is the International Monetary Fund and why does it matter? The IMF’s warning today caused investor sentiment to turn bearish for the first time in over 5 months. And while it’s unlikely we’ll see a bear market this year, with market sentiment turning bearish, a stock market crash or SP500 crash is possible. With trading sentiment now fearful, inflation rising, and and it looking more likely that there will be no interest rate cuts this year, the inflation stock market relationship means this latest stock market news will most likely cause stocks to crash. Trader sentiment does not appear likely to turn bullish anytime soon, and this stock market update means you’ll have to watch out, as this is not the stock market for beginners to attempt trading in. Sentiment analysis shows investor sentiment will most likely continue to become more bearish over the next few weeks.

The International Monetary Fund, or IMF, sent a stark warning to investors today that caused whales to sell their stocks and caused fear to re-enter the market for the first time in over five months. Let me show you what the IMF said that has investors so fearful right now. And then let me show you what Jerome Powell’s reaction was that caused the bond market to crash. My name is Stock Curry. I’m a former Merrill Lynch and Morgan Stanley investment banker, and I have over 25 years of trading experience. And while retail investors are buying the dip and keeping the stock market propped up today, the whales have been selling. Large institutions are getting out. They are fearful of these warnings from both Jerome Powell and the International Monetary Fund.

The IMF released their annual report today and they said the global economy is growing, but may be headed for trouble. But what really spooked the markets was when the IMF sent a very rare warning to the United States over their spending and ballooning debt. The IMF’s new forecast for global growth calls for a 3.2% increase this year. This year’s anticipated growth falls short of the pre-pandemic annual average of 3.8%. And while that’s decent for now, the view is darker a few years from now. Unless policy reforms or new technologies emerge, annual global growth rates will slip over the remainder of this decade. By 2030, the global economy could be expanding at an anemic 2.8% annual rate, which the IMF called “historically weak”.

In a speech last week, the fund’s managing director warned that the global economy is headed for a sluggish and disappointing decade, which she dubbed the “Tepid Twenties”. Now, all of that might be important for the long time global economy, but none of it really matters to US investors. It was what the IMF did next that really spooked investors and wiped out this morning’s gains. The IMF issued a very rare and stark warning to the United States over its spending and ballooning debt. The International Monetary Fund leveled an unusually direct criticism at the United States policymakers Tuesday, saying the country’s recent standout performance among advanced economies was in part driven by an unsustainable fiscal policy.

To explain what’s going on here, the US economy is currently one of the fastest growing economies in the entire world. And when it comes to that global growth forecast that the IMF gave, a lot of that is due to how well the United States is performing right now. But the IMF’s warning is that all of this growth in the United States is coming on the back of unprecedented amounts of debt. And they are warning that if fiscal policy in the United States does not change, and does not change soon, it could lead to a global disaster. Now, when it comes to fiscal policy, this is not something that the Federal Reserve has any control over. The Federal Reserve controls monetary policy, that is, the Federal Reserve can control interest rates.

What fiscal policy is, is that is the amount of spending and the amount of debt that the government gets into, and that is controlled by a combination of the US Treasury and more importantly US Congress. The more the US Congress decides to spend, and the less we bring in in taxes, that increases our deficit, that increases the amount of debt that the US is forced to bring on. It also increases the money printing that is required to finance all that spending that is going unchecked. And lately, the Federal Reserve has done everything they can with monetary policy to try to get inflation under control. Unfortunately, as we all know, this inflation was caused by all the money printing in 2020, and now the US is continuing to print money, and it’s continuing to add to inflation worries, and and there’s nothing the Federal Reserve can do about it.

The only solution to this at this point is people in Washington, that is Congress, the Senate, and the president, they have to cut back on their spending. It is the only solution left. Of course, with the upcoming election, there is no hurry whatsoever from Democrats to cut back on spending. Democrats know that all of this government spending is causing an artificially inflated economy, making both the jobs as well as the GDP appear to be really, really good, but hiding the fact that all of this economic growth is coming on the back of a huge amount of debt. And eventually that debt has to get paid off. And that is when we start running into problems.

Washington’s overspending, the IMF report said, risked reigniting inflation and undermining long term fiscal and financial stability around the world by ratcheting up global funding costs. Something has to give, the IMF warned. The IMF warned that either Washington is going to cut back on their spending, or inflation is going to go out of control and it’s going to cause another global financial crisis, just like we saw in 2008. The amount of money printing over the last few years has been unprecedented. The US printed trillions of dollars of money back in 2020 in order to fight the Covid pandemic. But shockingly, today they are printing even more money than they did in 2020, and this is causing inflation to come back with a vengeance.

Last year’s $1.7 trillion US federal deficit was up from about $1.4 trillion in fiscal year 2022. And all of that red ink risks adding to inflation and damaging global financial stability. Over the past six months in a row, the rate of inflation has been going up. It has been increasing. Despite the Federal Reserve’s accusations that inflation is under control and that it is coming down, the data says otherwise. And now the Federal Reserve and the Treasury are no longer able to hide behind the data that is right in front of their faces. And the market is starting to flip.

Treasury Secretary Janet Yellen has so far sought to downplay the growing worries about debt sustainability. As she has repeatedly said, debt sustainability is measured by the cost to service debt as a percentage of GDP adjusted for inflation. This is complete BS. It is designed to misdirect or redirect investors attention away from the real problem. Let’s take a look at just how bad the growing debt compared to GDP really is. The total public debt as a percent of gross domestic product was fairly reasonable all the way through the 1970s and 1980s. But starting in 2008, the percent of public debt to gross domestic product has skyrocketed. And today, the total public debt stands at 120% of GDP.

Spending in Washington has been out of control ever since the global financial crisis in 2008. For 16 years in a row, the government has been spending significantly more than they’re bringing in. They have been financing the economic growth over the past 16 years through debt. And now the debt has gotten to a point where it has exceeded our GDP. And this is a major problem that has investors worried and is causing whales to sell their stocks. Janet Yellen’s forecasts that there’s nothing to worry about is vulnerable should interest rates remain elevated. And unfortunately for investors, Jerome Powell switched the script today and flip flopped on rate cuts.

Fed Chair Powell says there has been a lack of further progress this year on inflation. For the first time in six months, Jerome Powell is finally admitting that inflation is no longer going down, and is starting to go back up again. This is a completely different narrative from everything we have heard the Federal Reserve say over the past six months. This is the most hawkish the Federal Reserve has been since they started raising interest rates in 2021 and 2022. Of course we know why inflation is going up. It has everything to do with all of the money printing that the government is doing, and all the debt that they’re bringing on. The more money the government prints, the higher inflation goes. It’s simple math.

And because of this rising inflation, and because the government continues to print more money, which is going to cause inflation to go even higher, Jerome Powell is now cutting back on talk of cutting rates this year. Powell dialed back expectations on rate cuts. Federal Reserve Chair Jerome Powell said firm inflation during the first quarter had introduced new uncertainty over whether the central bank would be able to lower interest rates this year. That’s right. Jerome Powell is now saying that the Federal Reserve might not do any rate cuts this year. Remember how in October of last year, the market started skyrocketing when the Federal Reserve indicated that they were going to do three rate cuts this year? Now, the stock market went a little bit overzealous and actually priced in six rate cuts, which was just absurd and ridiculous. But now the Federal Reserve is saying, no, we might not actually do any rate cuts. We might be back to zero rate cuts this year. And of course, if you’re going from three rate cuts to zero, the next likely scenario is actually another rate increase.

Now there is one situation, and only one, where the Federal Reserve might cut rates this year. And that is if we get signs of an economic slowdown. So if we fail to get that soft landing that everybody is hoping for, and we get a recession, that is far more likely if in fact, a recession hasn’t already started, then Jerome Powell said he would cut rates. But he’s not going to cut rates just because inflation is coming down. He would cut rates because the economy was entering a really bad recession, and the Federal Reserve would have to cut rates in order to prevent the economy from going into a depression. Now, I talked about that a little bit in some prior videos. If you missed those, make sure you go watch my video that talks about how a depression gets started, and all the similarities we’re seeing to 1929 right now.

After Jerome Powell’s comment that they might not cut rates this year, the 2 year Treasury yield briefly topped 5%. And the 10 year Treasury yield skyrocketed to new yearly highs, nearly coming to a new one year high, almost higher than where it was in 2022. And as bond yields rise, this causes the stock market to fall. I have no doubt in my mind that had the IMF not made these comments today, and had Jerome Powell not flipped the script and started talking about not cutting rates this year, that the stock market would have gone up significantly. Today we had really good earnings reports. The economy and economic reports we’ve had have all been good.

It looks like the stock market should be rising. The problem is, over the past six months, the stock market rose a little bit too much, and now it has to reprice in the possibility that there might not be any rate cuts this year. Futures traders are now predicting that the first rate cut will come in September. Futures traders are also predicting only 1 or 2 rate cuts this year, not the three that the Federal Reserve had said. And Kalshi traders are predicting that the first rate cut won’t come until November. By the way, I have bets placed that there will be no rate cut in May, no rate cut in June, and no rate cut in July. And all of these trades should pay off beautifully. If you want to actually place a bet on whether or not the Fed is going to cut rates, and when they’re going to cut rates, you can place those bets on Kalshi, where you could possibly double or triple your money on a single play. If you want to do that and get $15 in free bets, you can check them out here.

Because of the IMF’s warning today, and because of Jerome Powell’s reversal and flip and now saying there’s going to be no rate cuts, the stock market has turned fearful. This is the first time in five months that the CNN Fear and Greed Index has turned to fear. When the index is greedy, it shows stock market investors are bullish. When the index is fearful, it shows stock market investors are bearish, and it indicates that stocks are most likely going to continue to go down. Options traders have been extremely fearful for a couple of weeks now. They have been loading up on put options. But so far stock market investors, those who actually buy stocks, have remained greedy. But that changed today with market momentum and stock price strength both falling into neutral territory. And if stocks continue to fall, which they look like they will, these will turn bearish.

If all you follow is the S&P 500 and Nasdaq, you might not realize just how much the stock market has fallen this year. The Russell 2000 Small Cap Index over the past three weeks has now given up all of its gains on the year. And the Dow Jones Industrial Average is also very close to turning negative for the year. The S&P 500 and Nasdaq are still both up significantly on the year, but the technicals just turned bearish. The daily technicals have been bearish for a while now, but just this week, the weekly technicals turned bearish on the S&P 500, with a candle now below the ten day EMA, and the MACD forming a death cross. The Nasdaq has already been bearish on the weekly chart, but that bearishness is now increasing and getting worse.

Now even though investors are fearful right now, and even though the stock market is going down, this does not mean that we are going to get another 2022 style bear market. It does not mean we’re going to get another 2008 style crash. All we really need right now to fix this situation is a slight pullback, or correction, in the market. Right now, the Nasdaq only needs to fall another 7% to get down to its ten month moving average, and that will still keep the Nasdaq bullish for the year. The S&P 500 needs to fall 6% to get back down to the ten month moving average, but could fall another 11% to get back down to major support. So altogether, we’re only looking at about a 6% to 11% decline in the market in order to fix the overbought situation that we’ve had for the past few months.

And once we get that pullback, or correction, then the stock market can continue higher. And after we get this pullback, there’s a very good chance that if inflation starts to come back down, and if the economy remains strong, then the stock market could very easily finish this year at a new all time high. We just need a short term pullback in the stock market. This is not necessarily a long term problem yet, but we do have to keep our eye on company earnings. Because if those start to turn negative, that could cause a more prolonged downturn in the stock market. We’ve already seen the banks that have reported whose earnings have come in a little bit worse than expected, and some of those bank stocks went down, which is why the Dow fell for six days in a row.

Now, in addition to that, we also have some news from some private companies that we’re going to have to watch out for as well. That could have some implications for some publicly traded companies on the stock market. And one of those we have to watch out for is Red Lobster, which is now considering bankruptcy. As more and more companies do layoffs and more and more companies deal with bankruptcies, this is obviously going to have a downward pressure on the stock market. It could cause stocks to go down a little bit more than we would like to see. So this is still something we’re gonna have to watch out for. We’re certainly not in the clear yet. What we really have to see is how this earnings season goes. We have a lot of companies reporting over the next few weeks, and earnings season is going to continue all the way through the middle of May. So there’s a lot of uncertainty still.

But certainly for the short term, over the next few weeks, the markets are bearish, and they do look like they’re going to go down for the next week or two. But once we get that 6% to 11% pullback, then we will be good, and we should be able to continue higher so long as earnings are good.

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