The S&P 500 (SPY) loved a second straight week within the plus column because the rally now has us nearer to the all time highs than the earlier lows. That is serving to thaw investor sentiment with visions of extra upside to come back. Nevertheless, earlier than we learn a eulogy for the correction, and get again to gung ho bullish, we do must ponder a number of the negatives which might be nonetheless abounding. That means to discover the explanations that some properly revered buyers are involved that stagflation and/or a recession are in our future which clearly wouldn’t be a optimistic for inventory costs. That’s the mission of this week’s commentary to assist us plot our path ahead. Learn on beneath for extra….
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(Please take pleasure in this up to date model of my weekly commentary printed March 25th, 2022 from the POWR Worth e-newsletter).
Earlier this week I posted a commentary that contemplated the very important matter of…Is a Recession Coming?
I’m going to share nearly all of that commentary beneath adopted by the newest info on the financial system to see if the recession warning sirens develop louder or softer:
“The place to start out this dialogue is with the next article printed final week on CNBC:
It is a month-to-month survey of economists to measure the typical outlook for the US financial system. And listed here are the important thing excerpts from that article:
“The likelihood of a recession within the U.S. was raised to 33% within the subsequent 12 months, up 10 proportion factors from the Feb. 1 survey… Respondents debated whether or not the latest surge in commodity costs would immediate the Fed to hike charges quicker as a result of it provides to inflation or elevate charges much less as a result of they cut back progress… The common GDP forecast for this 12 months slipped by 0.8 proportion level however stays at a barely above-trend 2.8%. The GDP forecast for 2023 dropped by a few half some extent from the final survey to 2.4%.”
Your first response might be a sigh of reduction that just one/3rd of economists has this pessimistic outlook. Now the scarier notion is to seek out out that traditionally solely 40-50% of economists have been predicting a recession earlier than it really occurred.
Certainly, it’s a very inexact science and why the present degree of concern is definitely fairly excessive.
Now let’s ponder this very considerate piece from one among my favourite market commentators, John Mauldin: Brace for (Recession) Affect
For the previous 12 months Mauldin has urged of us to think about the opportunity of 1970’s fashion stagflation. That’s an unsightly financial atmosphere the place a stagnant financial system emerges similtaneously excessive inflation.
And sure at the moment it was about surging power costs (of us my age or older will definitely keep in mind the fuel shortages and lengthy traces on the pump throughout the US).
John initially contemplated the opportunity of this taking place. Now he fears that the Russia/Ukraine disaster, with associated power shock, was the final piece of the stagflation puzzle.
Is Mauldin proper???
That certainly is the $64,000 query (extra like $85 trillion query given the dimensions of the world financial system).
Now let’s return to the earlier assertion…economics is an inexact science. So for as a lot as I recognize Mauldin’s contemplation of stagflation…I don’t imagine it’s a forgone conclusion.
That sentiment is echoed within the earlier clips from the economists survey displaying the +2.8% GDP progress expectation for this 12 months and +2.4% for subsequent 12 months.
So Reity…why even convey it up?
As a result of it COULD come true and we might be smart to remain vigilant searching for indicators of that potential. That’s the reason we aren’t again to 100% lengthy the inventory market whilst we broke above the 200 day transferring common in the present day.
…If the threats of stagflation, world disaster and/or recession grows…then we’ll get increasingly more defensive.
If these threats show to be nothing greater than false boogeymen…and the financial system and bull market keep on observe, then we’ll turn out to be extra aggressively lengthy the inventory market.
Simply do not forget that essentially the most bullish taking place proper now could be we nonetheless have traditionally low rates of interest making shares the MUCH BETTER VALUE than bonds. That’s little question behind the latest bounce because it was behind the March 2020 bounce when the Coronavirus disaster was removed from being solved.
This final half explains our bullish bias now even within the midst of an unclear and unsettling atmosphere.”
Finish of Earlier Commentary. Now on with recent insights on the financial system to see if we’re proper to stick with our bullish bias in place.
Gladly the financial information seems to be fairly good beginning with the bottom jobless claims report since 1969…sure, 1969.
This necessary measure of employment well being tells you that employers should not but apprehensive about their enterprise outlook whilst inflation rises…provide chain issues…and all of the supposed worries about Russia/Ukraine.
That means that if these boogeymen have been really haunting enterprise folks it might result in deterioration of the employment image…not an enchancment like the perfect jobless claims report in over 50 years.
Subsequent lets take a look at the broader financial readings discovered within the PMI Flash report. There we see the Providers part on the rise from a heathy 56.5 to a fair more healthy 58.9.
Similar track for Manufacturing which churned out a 58.5 studying versus 57.3 beforehand.
Add them collectively and now we have a Composite studying of 58.5. And only a reminder, every little thing above 50 factors to financial growth. And every little thing north of 55 is an indication of sturdy enchancment.
So right here once more, if there have been even slightly little bit of indicators of weak point they need to begin creeping into these reviews. I’m not saying they might dive straight underneath 50 as proof of issues.
Maybe seeing it slink decrease and decrease and thus getting nearer to 50 the place we’d be extra apprehensive a few looming correction.
Merely not taking place at this second. So stick will bullish bias. BUT most actually preserve watching these financial readings in weeks and months forward as a result of we’ll need to get extra defensive on the first critical signal of financial weak point.
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All of the Greatest!
Steve Reitmeister
CEO StockNews.com & Editor of POWR Worth buying and selling service
SPY shares closed at $452.69 on Friday, up $2.20 (+0.49%). 12 months-to-date, SPY has declined -4.39%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.
Concerning the Writer: Steve Reitmeister
Steve is best recognized to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Whole Return portfolio. Be taught extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.
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