The U.S. economy grew in the third quarter, reversing a negative trend from the first half of the year — but weakness looms under the surface and households shouldn’t be lulled into a false sense of financial security, economists and financial advisors said.
“I think investors should still continue to be cautious … and plan for more disruption,” said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners, based in Irvine, California, and a member of CNBC’s Advisor Council.
Gross domestic product — a sum of all the goods and services produced in the U.S. — grew by 0.6% from July through September, the Bureau of Economic Analysis estimated Thursday. That figure amounts to 2.6% growth on an annualized basis.
“For the U.S. economy, a developed economy, that’s very respectable, slightly above average,” said John Leer, chief economist at Morning Consult, a data research company.
Four experts break down strong third-quarter U.S. GDP data
Why it may be ‘a chilly winter’
That GDP expansion marks a rebound from a deceleration in both Q1 and Q2. Two consecutive quarters of negative growth meets the common definition of a recession — though the National Bureau of Economic Research, generally considered the arbiter of downturns, hasn’t officially declared one.
Nonetheless, many economists don’t expect the recent growth to persist.
The headline growth in Q3 was driven by non-domestic factors, like an increase in exports overseas, Leer said. But the U.S. can’t depend on strong global demand to continue, due partly to a strong dollar, which makes U.S. products more costly to buy, as well as economic challenges in Europe, an ongoing slowdown in China, and high food and energy prices globally, Leer added.
I think investors should still continue to be cautious … and plan for more disruption.
Winnie Sun
CO-FOUNDER AND MANAGING DIRECTOR OF SUN GROUP WEALTH PARTNERS
He also pointed to a slowdown in residential and non-residential fixed investment, which includes things like homebuilding and construction of commercial buildings and warehouses.
And consumer spending, which accounts for two-thirds of the U.S. economy, “slowed to its weakest pace since the first quarter when spending first hit a wall in response to soaring inflation,” Diane Swonk, chief economist at KPMG, wrote in a tweet.
“Bottom Line: This may be the strongest and only positive print on GDP growth we see for a while,” Swonk wrote. “Bundle up for what looks to be a chilly winter.”
And there are concerns beyond some underlying weakness in the federal data, economists said.
Consumer prices this year have risen at about the fastest pace in four decades, pressuring household finances. The Federal Reserve has also been raising borrowing costs aggressively to reduce inflation. Higher interest rates have already pushed mortgage demand to the lowest level since 1997.
“Export growth will soon fade and domestic demand is getting crushed under the weight of higher interest rates,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a research note. “We expect the economy to enter a mild recession in the first half of next year.”
What consumers can do to prepare for a recession
Banksphotos | E+ | Getty Images
What this boils down to: Don’t be lulled into a false sense of security, financial advisors cautioned.
While a downturn isn’t inevitable, households can take financial steps to prepare in case one comes and triggers layoffs and more market volatility along the way.
“Think of a reasonable worst-case scenario — how would you fund it?” said Allan Roth, a certified financial planner and certified public accountant based in Colorado Springs, Colorado.
1. Shore up your cash reserves
Households should always ensure they have access to cash in case things go wrong, whether job loss, home repairs or unexpected medical bills, for example. But with recession might come greater likelihood of needing to draw from that financial buffer.
The general rule of thumb is to have three to six months’ worth of expenses handy. Sun advises clients to have six months, plus an extra three months for each child in a household.
Consumers should consider adjusting their emergency-fund needs based on overall stability, Roth said. For example, someone working at a start-up company generally has a less dependable job income stream than a tenured university professor and may therefore need more cash access, he said.
“Cash” also has a broader definition than parking money in a traditional bank account with paltry returns, advisors said. Consumers can look to high-yield online savings accounts or money market funds, for example, advisors said, which currently pay a higher return.
2. Reduce your debt burden
Paying down credit-card debt and other high-interest loans — and making sure households aren’t racking up more — is also of primary importance, experts said.
Something that lends further urgency to this advice: Variable rates are likely to increase more due to the Federal Reserve’s anticipated interest-rate hikes.
“There’s a potential for some folks to lose their jobs, and you’d hate to see in two or three months people don’t have any savings, have gone into debt, and it triggers a wave of personal bankruptcies or other forms of financial hardship,” Leer said.
Clients are showing more financial anxiety these days than they have in many years — but paradoxically, many households spend more to feel better, and that may be happening on credit cards, said Sun. Credit-card balances jumped 13% in Q2 — the largest year-over-year increase in more than 20 years, according to a recent report from the Federal Reserve Bank of New York.
Sun advises focusing on paying down debt with interest near or above the inflation rate, which is currently about 8% on an annual basis. The only potential deviation would be to first save money in a 401(k) plan up to the company match, if that’s available, she added.
Households might also try to reduce their debt burden by downsizing to one car instead of two to cut monthly auto payments, for example, Sun said.
Borrowers with a fixed-rate home or other loan at 3.5% are in a good position and don’t necessarily need to accelerate their debt payments, Leer said.
3. Stay the course on investments
Investors should also stick to their investment strategy — and not panic in the face of big stock and bond losses, Roth said.
Pulling money out and ditching a well-laid investment plan locks in losses, which right now exist only on paper. The S&P 500 stock index is down 20% in 2022; meanwhile, U.S. bonds, typically a ballast when stocks tank, are down about 16% in the past year.
“We’re like heat seeking missiles,” Roth said. “We buy high and sell low.”
The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.
Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.
In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.
“No Man’s Land”
Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.
Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.
While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.
Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.
First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.
“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.
A News-Driven Environment
Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.
Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.
BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.
The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.
None of the ETFs recorded outflows for the day.
Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan
According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.
Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.
A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.
What’s Next For Bitcoin?
Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.
But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.
Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.
“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”
PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.
The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.
Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.
LI.FI Issues Warning After $8 Million Exploit
LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.
According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.
Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.
Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.
“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.
This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.
But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.
Recent Exploit Mirrors March 2022 Attack
Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.
The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.
“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.
Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.
LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.
