What an interesting month.
The Fed raised rates by another .75 this week and, as of today, the economy is in recession — that is, if you go by the definition that a recession is 2 quarters of negative GDP (which is the standard used by other countries, such as the UK). But, perhaps because it’s an election year, we have lots of people pushing back on the idea that we’re not “officially in a recession." And then, who cares, right? Stocks have been on a tear the last two weeks, particularly these last three days of the month.
I’m less sanguine and, while I don’t think we’re headed over a cliff by any means, I think there’s more pain to come later this year as it becomes clear that inflation will not be sufficiently tamed by the relatively modest rate hikes and QT.
I also see housing contracting and, in fact, am already seeing signs of it with lots of “reductions” in home prices and homes sitting on the market for longer. Don’t get me wrong, it’s still crazy out there and deals are happening quickly without lots of concessions, but the tide has definitely backed out a bit (and that, in my view, is a very good thing).
All that said, will there be a decline in employment? Well, anecdotally, Amazon (who employs 1.6 million people) just rose an astounding 10% today after blowing out earnings whereas Meta (whose rebrand I hate) is floundering still due to a miss in earnings (it employs 70,000 people by comparison). My point is "who knows?!” I do, however, have friends who work for both companies. The ones at Amazon feel very secure whereas the ones at Meta are nervous.
Then there’s the fact that everyone seems to expect a recession. Will this become a self-fulfilling prophecy or will the market use this to inflict as much pain on as many people as possible by head-faking and marching higher?
On the one hand, well-known mega-bull, Tom Lee, today said that he believes the bear market of 2022 is “over” and we are headed for new highs by the end of the year. That’s a bold call. On the other hand, Bill Ackman, who has had his ass handed to him for years now by taking various positions (both short and long) that have turned out to be disasters, is more in my camp. Who do you believe?
Anyway, I’m just spitballing and have always acknowledged that I am a terrible market timer, but I suspect we have this ongoing bear market lingering on at least through the end of the year, if not longer through late 2023, and that we have not yet “bottomed out” in the major indexes for this market cycle. |