Finance

Economic turbulence ‘effectively assured’ Fed will cut interest rates in September

Published

2 months ago

August 8, 2024

Business Finance News

The Dow Jones dropped by over 1,000 points on Monday and has been struggling since. (iStock )

A surprising jobs report released last week paired with a volatile Japanese market led to a massive selloff during Monday’s trading day, with both the Dow Jones and the S&P seeing their worst sessions since 2022.

In the Bureau of Labor Statistics’ most recent employment report, only 114,000 jobs were added, down substantially from the previous month when 206,000 jobs were added. This sudden slowdown in employment has led to mounting concerns about an economic recession. The selloff, largely set off by the report, has some uncomfortable similarities to market crashes like the 1987 Black Monday stock market crash and the financial crisis of 2008.

Along with fewer jobs added, the unemployment rate shot up to 4.3% in July, adding to the mounting fears that ultimately led to Monday’s troubles. The Dow dropped by more than 1,000 points, or 2.6%, while the S&P 500 slid 3%.

On Tuesday, stocks recovered slightly as recession fears lessened and Japanese equities rallied. The Dow Jones rose by just over 294 points and the S&P 500 rose 1.04%. This ended the three-day stretch of market losses. Global markets also recovered as Japanese stocks rebounded, with the Nikkei 225 seeing its best day since October 2008, jumping 10.2%. On Monday, the Nikkei dropped by 12.4%.

Wednesday ended the gains the market made the day before, with the Dow falling 234 points by the end of the day. The S&P 500 also dropped again by 0.8%.

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A turbulent market may be good for interest rate cuts

Despite a rough week for the stock market, the jobs report has effectively assured the rate cuts expected in September will happen, Melissa Cohn, William Raveis Mortgage regional vice president, said in a statement.

Consumers have been waiting for these rate cuts to start borrowing again, but they should only expect a small initial cut. Should the Fed cut rates multiple times through the end of the year, then consumers may see more substantial movement in interest rates.

“People also need to remember that mortgage rates aren’t going to change based on a Fed cut,” Cohn said. “Your home equity rate will drop. Your student loans, car loans, all those rates will drop every time the Fed cuts rates, but mortgage rates are tied to the bond market, and the bond market is more affiliated with the rate of inflation and bad economic data than it is to the Fed funds rate.”

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Economists can’t decide whether the US is headed toward recession

This week’s ebb and flow of the market created a complicated look at where the economy may be heading. Economists have differing opinions on whether this means the U.S. is catapulting toward a recession.

The unemployment rate rising to 4.3% triggered an economic rule known as the Sahm rule, which is an indicator of a recession. The rule states that a sudden increase by 0.5 percentage points in the unemployment rate within a 12-month period typically indicates a recession is coming.

However, despite this indicator, it’s “very doubtful” that a recession has started, Adam Schickling, a Vanguard senior economist said. There are conflicting reports that have led Schickling to make this statement.

“A significant and persistent deviation between the household and establishment surveys has created a unique paradox of the unemployment rate rising 60 basis points since July 2023 even as job creation in the establishment survey has more than offset an increase in the labor force,” Schickling explained.

Fears of a recession may simply be an overreaction to a bad week for the market and a month of weak employment, according to some economists. Still, a continued cooldown of the employment market could signal a cause for concern.

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Finance

After rejecting Google takeover, Wiz says will IPO when ‘stars align’

Published

54 mins ago

October 18, 2024

Business Finance News

Wiz co-founder discusses the company's expansion into the UK

LONDON — Cybersecurity firm Wiz is seeking to hit $1 billion of annual recurring revenues next year, the company’s billionaire co-founder Roy Reznik told CNBC, adding that the firm will go public “when the stars align.”

Wiz makes software that connects to cloud storage providers like Amazon Web Services or Microsoft Azure and scans for everything it stores in the cloud, helping organizations identify and remove risks in their cloud environments. It was founded by four Israeli friends while they served in 8200, the intelligence unit of Israel’s army, and most of Wiz’s engineering personnel are still based in Tel Aviv, Israel.

Earlier this year, the company rejected a $23-billion acquisition bid from Google, which would have marked the tech giant’s largest-ever takeover. At the time, Wiz CEO Assaf Rappaport said the startup was “flattered” by the offer, but would remain an independent company and aim to list instead.

Speaking with CNBC at Wiz’s new office space in London, Reznik said that the company has received offers from “many people that want to get their hands on Wiz stock” — but that, while “very flattering,” the firm still thinks it can do it alone by going public.

“We’ve already broken a few records as a private company, and we believe we can also break a few more records as an independent public company as well,” Reznik said.

Four-year-old Wiz has raised $1.9 billion in venture capital to date, including $1 billion secured this year in a funding round led by Andreessen Horowitz, Lightspeed Venture Partners and Thrive Capital at a valuation of $12 billion.

In 2022, Wiz said it had reached $100 million in annual recurring revenue (ARR), up from just $1 million in 18 months. At the time, the startup said it was “the fastest software company to achieve this feat.”

Reznik, who is the vice president of research and development at Wiz, said the firm now hopes to double from the $500 million of ARR it achieved this year and hit $1 billion in ARR in 2025, which CEO Rappaport cited as a key condition before the company goes public.

UK expansion

Wiz has been expanding its presence internationally, with a particular focus on Europe, from where it sources 35% of its revenues. Last month, the firm opened its first European office in London.

“I think the talent here is amazing, and the ecosystem is amazing,” Reznik told CNBC. “We have always been very much involved in Europe — and specifically the U.K. — and I feel like it’s a natural evolvement of Wiz to double down even more here in London and the U.K.”

The U.K. represents a major growth opportunity when it comes to cybersecurity, Reznik said, adding that recent events like the cyberattack on National Health Service hospitals and an incident affecting Transport for London have “roof topped” the level of interest in the kinds of products Wiz offers.

“The cloud market is going to reach $1 trillion over the next next few years,” Reznik, who moved from Israel to the U.K. just three months ago, told CNBC. “This year is going to be around $700 million, while security is just 4% out of that, I would say. So that makes it a $30 billion market, which is huge.”

Speaking about the U.K. market, Reznik said: “We see a lot of interest here. Many of the largest banks and retailers, are Wiz customers. But we’re also seeing a huge potential for growth.”

Wiz’s customers include online retailer ASOS and digital bank Revolut as customers in the U.K.