Let’s rewind. It’s December 2022 and the predictions for the new year are flooding in from every research, rating, and investment firm on the Street. The predictions are grim, to say the least and hearing the word “recession” is more common than a beard at a Lumineers show. The bleak prophecies are rolling out from Blackrock1, J.P. Morgan2, the Mortgage Bankers Association3, Fitch4, and parades of others. A KPMG poll of global CEOs in October found that 86% believed a recession was coming within 12 months5.
Now back to today where we’re all asking the same question, “What recession!?”. The job market is stellar, home prices seem steady, and real income is rising (wages going up, inflation coming down). I can’t claim the title of economist, but I can offer three thoughts on what’s going on.
- The first lesson to learn is one that investors usually have to learn the hard way. You cannot consistently predict the market. Wall Street is unexplainably full of money managers who are paid millions and are rarely correct with their predictions. In fact, since the Philadelphia Federal Reserve started their survey in 1968, the majority of economists have failed to predict a single recession that’s occurred. You can call it their dirty little secret, but truthfully it doesn’t matter. Why? Because as unpredictable as the markets are from day to day, they’ve been remarkably predictable over the long run. Good investments go up over time, so stick to the formula. Save, invest, hold.
- Maybe Fed actions aren’t as potent as we thought?You can count me among the masses who assumed a historically fast rate hike would throw the breaks on most corporate/consumer spending. The waters can only get murkier as they start to drop trillions from their balance sheet, right? Apparently, we were wrong. Markets are up, money is still flowing and everyone who has a job (generally) has one. Maybe we’ll look back and see that various stimulus packages over the past four years were the force that carried us through. At the end of the day, the Fed Funds Rate was hiked over 5% in a year (the fastest hike of that magnitude since the 70s) and the wheels keep turning.
- The year isn’t over yet. We’ve enjoyed one of the strongest starts to any year we’ve ever seen, but don’t assume it’s a wrap. The US is a very consumer-driven economy, so I’ll direct your attention to the health of the consumer. Right now, we’re seeing credit application rejections hit a 5-year high7, consumer debt approach $1 trillion for the first time (with higher accompanying rates)8, and the personal savings rate at a point we haven’t seen since 20109. I am not saying things are about to get ugly. There are plenty of reasons to be optimistic as well. I’m simply reminding you to stick to the investment strategy you put together with your advisor, and don’t get greedy now.
4https://www.cfodive.com/news/us-recession-start-q2-2023-fitch-fed-stimulus-consumer/634514/
6 https://www.theatlantic.com/ideas/archive/2023/08/recession-doomers-economy/674900/