[Seungseop Song's Financial Light] The So-Called Recession, America's 'Reno' Rally

US Stock Market Soars Despite Interest Rate Hike
Should We Worry About a US Recession?
"An Illusion Created by FOMO and YOLO Generations," Critics Say

If you were to pick the most notable new term in the U.S. stock market this year, what would it be? It is probably ‘RINO.’ Originally a political term referring only to Republican Party members by name, it has recently come to mean a recession in name only. Why has this term started to become popular in the U.S.?

The Bull statue on Wall Street in New York, USA, symbolizing a bullish stock market
[Image source=Yonhap News]

Usually, when interest rates rise, the speed of economic recovery slows down, a recession occurs, and the stock market contracts. Since borrowing costs are high, ordinary households hesitate to take out real estate loans, and companies postpone investing in new businesses and facilities. Experts also widely predicted that once interest rates started rising after COVID-19, the overheated stock market would cool down.

In fact, the U.S. central bank, the Federal Reserve (Fed), has sharply raised the benchmark interest rate. The benchmark rate was 0.25% in January last year and rose to 4.50% by December of the same year. The rate continued to rise in February, March, May, and July this year, reaching as high as 5.50%.

However, despite fluctuations, the U.S. stock market showed an overall upward trend. The Standard & Poor’s (S&P) 500 index rose more than 20% this year. The Nasdaq 100 index also surged around 40%.

Goldman Sachs used the term RINO to explain the hot U.S. stock market despite the interest rate hikes. It stands for ‘Recession In Name Only,’ meaning a recession in name only. U.S. Republicans have long called those who behave like Democrats despite being Republicans ‘Republican In Name Only,’ and this term was borrowed from that usage.

Goldman Sachs also analyzed that the so-called RINO rally is leading the U.S. market. Jan Hatzius, a senior economist at Goldman Sachs, said in a recent report that the probability of the U.S. falling into a recession is only 20%. The forecast was lowered from 35% at the beginning of the year to 25% in June, and then further down to 20%.

Of course, there are other perspectives. One counterargument is that the stock market is not lively because the U.S. economy is good. This year, AI-related stocks surged due to the AI boom, and it is argued that FOMO (Fear Of Missing Out) investors chased after these stocks. The anxiety that if they don’t buy now, they will miss out on gains drove investors to buy stocks one after another.

Some also point to the emergence of the YOLO generation. Traditionally, when interest rates rise and recession fears grow, economic agents reduce consumption and increase savings. However, since the YOLO generation’s consumption has not decreased, a phenomenon completely different from traditional economic theory has appeared. Jeremy Siegel, a professor at the Wharton School, explained that the consumption habits of the YOLO generation support the U.S. economy and stock market.

Editor's NoteFinance is difficult. Confusing terms and complex backstories are all tangled together. Sometimes, you need to learn dozens of concepts just to understand one word. Yet finance is important. To understand the philosophy of fund management and to consistently follow the flow of money, a foundation of financial knowledge is essential. Therefore, Asia Economy selects one financial issue each week and explains it in very simple terms. Even if you know nothing about finance, you can immediately understand these ‘light’ stories that turn on the ‘light’ of financial insight.

This content was produced with the assistance of AI translation services.