Written by Ryan Hitchcock (Financial Advisor, High Point Capital Group, Milwaukee, WI)
Since hitting its low point on June 16, 2022, the S&P 500 index has rallied nearly how much (by the time of writing on August 25, 2022?
*see below for the answer
I took last month off from my newsletter because I didn't want to add to the noise around the, "are we in a recession or not" conversation. I'm sure you saw the debate on social media, TV news stations, or your coworker's Microsoft Teams chat. (If you are retired, that's the new "watercooler")
One camp was adamant that two quarters of negative GDP is the definition of a recession and that's final. The other camp states that the National Bureau of Economic Research (NBER) is the only one that can truly say if we are in a recession or not. So, who's right?
I say WHO CARES and let's look at what really matters...the data! I think investors are paying too much attention to the GDP numbers. Industrial production rose at a 4.8% annual rate in the first quarter and at a 6.2% rate in Q2. Unemployment is lower now than at the end of 2021. Payrolls grew at a monthly rate of 539,000 in the first quarter and 375,000 in Q2.
I think it's safe to say if we are currently in a recession, this is the best recession we've ever seen. But that's not to say a recession everyone can agree on isn't coming down the road.
Tug of War | Inflation vs. Growth
My quick recap:
Investors have faced a wall of worry this year with many headwinds wreaking havoc on all markets. These significant, and in some cases historic, developments leave investors asking two fundamental questions as we enter the third quarter:
1. Where do we stand today & what are the most important factors?
There are incremental signs of good news regarding inflation. Today the supply-demand imbalance is improving as new orders for goods relative to companies’ inventories are reverting toward more historical norms
The Fed's aggressive efforts to tighten financial conditions and tamp down inflation have been met with mixed reviews. Too aggressive and they will cause a recession, so is the market pricing in more fiscal stimulus as early as next year?
The U.S. Consumer
The U.S. consumer—whose spending, of course, is responsible for generating approximately two-thirds of the U.S. economy’s growth has not had a good attitude towards all this inflation
2. What is likely to occur in the coming months?
A deteriorating scenario:
Long-term inflation expectations would likely increase wage pressures and likely force the Fed to be more aggressive, leading to weaker earnings and economic growth.
A slowly improving scenario:
Pessimism would persist in the near term, but consumer strength driven by lower inflation would eventually win out.
A rapidly improving scenario:
An exogenous event would likely cause inflation to fall sharply–mitigating current concerns about the economy and enabling the Fed to adopt a more neutral stance as the economy regained momentum.
-Beware the 'finfluencer': How social media stars are leading young investors astray - FinancialPlanning.com
-What's a commodity "Supercycle" - Capital.com
-China’s biggest Wall Street bull just liquidated his Alibaba stake amid fire sale of five Chinese stocks - fortune.com
Helpful Resources - Found on rhitch.com
- Health Care & Retirement - YouTube 40 min webinar replay
- Creating a College Savings Plan - YouTube 50 min webinar replay
- Stock Market's In Perspective - YouTube 5 min watch time
- Budget Worksheet: Now vs. Retirement - PDF
- What is a Fiduciary and Why You Should Care - PDF
If you have any questions about how to plan for inflation in your personal situation, please don't hesitate to reach out!