The sound of short hair in the US stock market, another recession warning signal? A significant increase in personal bankruptcy applications by the United States

Faced with the dual test of high inflation and high interest rates, similar to businesses, many Americans have also begun to declare bankruptcy, which is also a sign of intensified financial difficulties. With the arrival of the holiday consumption season, it also sounded an alarm for maintaining strong economic momentum in the first half of the year, and the potential impact of factors such as a new round of energy price increases on inflation has once again ignited concerns about the US economic recession and the outlook for US stocks.

Consumer spending resilience or facing challenges

According to the latest data released by bankruptcy data analysis company Epiq Bankruptcy this week, there were over 38000 individual bankruptcy applications in the United States in August, an increase of 18% from the same period last year, which has accelerated. This is also the 13th consecutive month of year-on-year increase in this data.

Due to factors such as government financial support, personal bankruptcy cases in the United States have significantly decreased during the pandemic. Generally speaking, individuals typically need years of accumulated debt and severe financial difficulties to file for bankruptcy. "The sustained year-on-year growth indicates that the expectation of bankruptcy filing is difficult to immediately reverse," said Morin, Vice President of Business Development at Epiq

Since the beginning of this year, strong consumer spending has kept the US economy growing at nearly 2% in the first half of the year, and the outside world has become increasingly optimistic about the prospect of a soft landing. However, the new statistical data brings uncertainty. The Executive Director of the United States Bankruptcy Institute, Kuakenbos, stated that rising interest rates and increasing inflationary pressures are two reasons for the surge in bankruptcy numbers.

According to statistics released by the New York Federal Reserve last month, the cumulative debt of US personal credit cards exceeded the $1 trillion mark for the first time in the second quarter of this year. At the same time, the default rate has further increased. The share of credit card debt that is overdue for at least 30 days has increased from 6.5% in the first quarter to 7.2%, the highest level since the first quarter of 2012, and the proportion of total overdue debt has increased from 3% to 3.18%.

Personal credit card balance in the United States exceeds $1 trillion

BK Asset Management macro strategist Schlossberg previously stated in an interview with First Financial that for many American households, this is a complex period as hot inflation is cooling and the job market is strong, but many still feel uncertain about the next steps in the economy.

The upcoming student loan repayment period, which is about to resume this autumn, may be a test in front of us. According to Experian's data, there are currently 45 million people in the United States burdened with student loan debt, totaling approximately $1.7 trillion. Many market participants are concerned about the potential impact of restoring student loan payments on the economy, especially on consumer spending and household finances, as this may increase household debt defaults.

Education Data Initiative statistics have found that in the distribution of federal student loan debt, people aged 25 to 34 account for 30%, while those aged 35 to 49 account for nearly 39%. These groups are the backbone of consumption. Schr ö sberg told First Financial that for many American families, the aid consumption and debt relief related to the pandemic are coming to an end. "Credit card loan interest rates continue to rise, debt repayment becomes more expensive, and consumers continue to bear more debt. These factors, combined, will bring greater pressure to some budget constrained households."

Federal Reserve Policy Risk Anxiety Rises Again

The world's two largest oil producing countries, Saudi Arabia and Russia, announced on Tuesday that they will voluntarily reduce production and extend it until the end of the year. Boosted by this, the global benchmark Brent crude oil price hit a 10 month high on Tuesday. According to AAA data from the American Automobile Association, the average selling price of regular gasoline at gas stations in the United States reached $3.811 per gallon this week, the second highest level in the same period since records began in 1994.

Fuel price fluctuations are undoubtedly bad news for the Federal Reserve. Energy inflation is seen as one of the main driving forces behind this round of interest rate hikes, and as supply chain bottlenecks ease and demand cools, the US CPI has fallen to around 3%. If energy prices push up overall inflation again, it will put the Federal Open Market Committee, which is busy suppressing core inflation, in a more challenging position.

The market's expectation of the Federal Reserve maintaining higher interest rates for a longer period of time has resurfaced, with federal funds rate futures showing a slight increase in expectations of a rate hike this year, and pricing for the first rate cut has also fluctuated. However, this may bring about the risk that the economy will cool down more than expected. The yield curve of US Treasuries further reversed in the middle of Wednesday's session, and the 2-year/10-year treasury bond reversed to about 75 basis points.

Economic concerns are also reflected in a cooling risk appetite and a decline in stock indices. According to statistics from First Financial Journalists, there has been a strong trend of bearish views on US stocks recently. In addition to seasonal factors, questioning the sustainability of economic resilience is also an important viewpoint.

Morgan Stanley star strategist Wilson believes that the growth of the US economy for the rest of this year is expected to be weaker than expected, and US stock investors will soon be disappointed by this. He said that many people currently expect a substantial re acceleration of economic growth, which is unlikely to happen. The data for September and October may be weak, but market expectations have not reflected this.

Coincidentally, JPMorgan Chase strategist Matthika has also issued a warning that US stock investors are overly complacent and not prepared enough reasonable means to cushion stock market volatility. He emphasized that the weakness of personal consumption expenditure is one of the reasons why he still holds a skeptical attitude towards the acceleration of economic growth.