After Yet Another Rate Hike from the Fed, Upcoming Loan Repayments Cast Doubt on H2 2023

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Last Updated on: 9th August 2023, 08:46 pm

While the S&P 500 Index enjoyed a great July, gaining about +3.1% on the month, macroeconomic prospects leave much to desire for Q3 and Q4. 

Due to the failure of President Joe Biden’s student loan debt forgiveness program, millions of American debtors are now on the hook for $1.8 trillion in student debt repayments. In effect, we’re about to see billions of dollars of monthly spending evaporate from the economy as more would-be spending is allocated to making debt repayments. 

This could have serious consequences for the broader U.S. economy. With HSBC Asset Management predicting a recession this year, the resumption of debt student repayments—which have been effectively frozen since March 2020—may cause a ripple effect that knocks the country into a major economic downturn. 

Market Snapshot: August 4, 2023

• Inflation Rate: 3.0%
• Fed Rate: 5.25% to 5.50%
• Gold Price: US$1,942/oz.
• Silver Price: $23.55/oz.
• Bitcoin Price: US$29,243
• Ethereum Price: US$1,846

The positive news is that there are steps you can take to insulate your investment portfolio from recessionary activity. Assets non-correlated or weakly correlated to the stock market or the U.S. dollar may make for useful diversification tools. For instance, precious metals such as gold have historically outperformed the stock market during recessions, which has been the case in 75% of all recessions over the past 50 years. 

One of the unsung risk management assets this year is Bitcoin, which has quietly appreciated by about +80% on the year. While certainly not without its share of risks, a deeper diversification strategy that includes Bitcoin and altcoins may prove lucrative for investors with a greater tolerance for risk in the coming months. 

While both Bitcoin and Ethereum had a quiet July, with neither asset gaining or dropping significantly on the month, both digital currencies have been deemed by CNBC as having a “good setup for the new quarter”. A poor macroeconomic backdrop and regulatory risk from the SEC have certainly dampened Bitcoin’s trajectory in recent weeks, but large-scale institutional investment from players such as BlackRock, Fidelity, Invesco, Ripple, and Coinbase who are set to launch ETFs involved in Bitcoin or, in the latter two cases, public offerings offshore. 

In short, there is a lot of room for growth in the cryptocurrency and precious metals markets right now. If macro-level conditions continue to deteriorate in the months ahead, we could see more fuel added to an alternative asset market already set to take off. 

This September, as Americans start to repay their student loans once again, households will start adopting tighter spending budgets. As consumer spending drops, so too will corporate earnings, which may result in job cuts and, in the worst-case scenario, even a recession. 

Consider fortifying your retirement portfolio with risk-managed assets to safeguard your wealth for tomorrow’s uncertain economic landscape. With the Federal Reserve hiking interest rates to a generationally-high 5.5%, the future of the U.S. economy is decidedly uncertain. 

To hedge against these uncertainties, diversification in precious metals or cryptocurrencies may be in your best interests. 

Speak to your financial advisor today about whether alternative assets like Bitcoin, Ethereum, and precious metals are the right move for you in Q3 and Q4 2023.