MFG October 2022 Comments
The recession continues. St Louis Federal Reserve September 29, 2022 posted the ‘US 3rd Quarter Estimated GDPNow -.6%.’ This most likely will mark the third consecutive quarter of negative GDP growth in the US.
Inflation has been slowing, but not as quickly as hoped. “June inflation peaked at 9.1% and has fallen to 8.3% in August.’ CNBC September 18, 2022. While the news outlets are covering ‘inflation is going to be high for a long time’, the BLS said 10/13/22 ‘in the 3rd Quarter 2022, inflation rose just 2% if annualized.’ Yes, inflation is collapsing.
In August, the consensus from the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters (SPF) was that the ‘CPI inflation rate will decline from 7.5% in 2022 to 3.2% in 2023 and to 2.5% in 2024.’ August 31, 2022.
An interesting coincidence I observed was the summer stock and bond markets reached their 2022 highs the week of August 15th. Then, the US Government passed the “Inflation Reduction Act’ and the ‘Deficit Reduction Act’ at a combined cost of just under $1 Trillion Dollars.
‘Since mid-August, US Treasury 10-year rates have soared from 2.9% to 3.9%.’ And since mid-August, the US Stock Index of the S&P 500 has fallen 17%.’ WSJ October 11, 2022.
The additional US Government Spending, even for a worthwhile cause, has added to longer term inflation fears and most likely extended the current recession.
I am restating from my June 15, 2022 McFee Comments the observation from Capital Group April 2, 2022 “The good news is that recessions generally haven’t been very long. Our analysis of 10 cycles since 1950 shows that recessions have lasted between 8-18 months, with the average spanning about 11 months. During a recession, the stock market typically continues to decline sharply for several months. It then often bottoms out about 6 months after the start of a recession, and usually begins to rally before the economy starts humming again.’
This recession may be longer than the average. I’d still suggest that if it were going to be an 8-month recession, the market bottom in June 2022 would have been it. Now, the 18-month recession looks more likely with a stock market bottom and an interest rate peak in September/October 2022.
Internationally, the War in the Ukraine continues to drag on Europe and Emerging Market performance. If the War finds an ‘off ramp’ in the next 1-6 months, European stocks may be set to soar along with Emerging Market stocks.
The US Election may have an impact on the markets. If predictions from “Real Clear Politics’ 10/10/22 polls come to fruition, I’d expect a ‘divided US Government after November’ which historically, the stock market appreciates.
Enjoy the beautiful fall weather!
Disclosure: The information and opinions presented here are those of Wade McFee and are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions, views and information expressed in this commentary are subject to change without notice based on market conditions and other factors. You should contact your investment representative, attorney, accountant or tax advisor with regard to your individual situation
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