An appropriate euphemism for today’s economy. Mushy…… Not awful enough but not very good either. The Fed’s interest rate rises and money system draining, coupled with the newly found bank risk, have started to cool things off. Not just from a data standpoint but also to the real world. You can see it and feel it when you are out and about. Some prices are coming down. Yes, from a higher level but you can see it. Booking a restaurant, plane ticket, or service has gotten a lot easier. More sales at the mall or at your online retailer. Not at the giveaway post December 26 level just yet, but better than it was a year ago. All endemic to slowing retail spending. That’s a good thing.
Moving forward, expectations are all over the map, depending on who you listen to. We… well at least I, am pretty resolute about the forward look. Without making this ranting 5000 words the key takeaways are:
Federal reserve will tighten one or two more times and then hold for a while. The shrinkage in the money supply will continue much longer. It will keep things tighter than most expect.
Recession will be “a thing” and widely accepted before the year is out. In the prior six times over the last 55 years the Fed has raised rates from an inflation base over 5 percent, recession has ensued. Killing the inflation monster is not negotiable and it will take effort and resolve.
The biggest risk we have (for now) is commercial real estate and the economic impact. Malls, offices, and warehouses are investments based on cost of invested capital. Most of that capital is variable rate. Those costs have risen a lot. When the loans roll over, it won’t be pretty. Commercial real estate contributed roughly 5 percent to GDP in 2021 so it’s not catastrophic but neither is it inconsequential. Not predicting a debacle but wouldn’t put client money to work in that space.
Last and not least, I still stick by the prognostication that the equity (stock) markets will end the year approx. 20 percent above where they started it. At this juncture it’s about plus 8 so on the right track. Equities lead the economic numbers, and this time will be no different. Not a raucous Bull Market but slow recovery.
One thing to remember, all recessions are not created equal and living through a recession is a function of one’s own personal financial structure. For people that are not over leveraged in debt, have spending that’s reasonable, and fixed costs that are not too high, a recession isn’t a horrible thing. One might even argue that buying things at lower prices, getting more for their entertainment dollar, and being able to invest money in good investments at lower prices is actually a good thing. Crazy I know but true. On the contra…. People with excessive debt, unaffordable spending, poor job prospects for high dollar jobs, or leveraged to variable rate loans won’t have it as good. Basically, down economic cycles are the reason you do financial planning because times aren’t always rainbows and roses. Sometimes its clouds and weeds….All things cycle and neither last forever, so the key is getting through both in one piece.
As always, we are here for you and your family. If you would like to chat at length or in specific terms, don’t hesitate to reach out. I enjoy the discussions and am always available. Stay well, talk soon, be good.
Ed, Frank, Tammy
Edward Stiles
200 N Union St.
Kennett Square, PA 19348
cell 610-745-1931
Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network
All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.
This material is intended for informational/educational purposes only and is theoretical. The data and theories discussed are notional to make a point. The details and conclusions are solely the opinion of the author. It should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investing entails risk of loss and no guarantees are implied or suggested. Please contact your financial professional for more information specific to your situation.