Most times investing seems fairly complicated. So many different economic reports…so many data points…and so many experts with conflicting opinions.
And yet sometimes…it is amazingly simple.
In short, the market is bearish when the odds of recession are high. Conversely it is bullish when the odds of recession are low.
In my Friday commentary I noted that indeed recent economic activity was coming in better than expected. Especially true for ISM Services given the strength of retail sales.
Sounds like great news, right?
Unfortunately, it had more investors worried about inflation staying too hot…which would lead the Fed to more rate hikes…which increases the possibility of a future recession forming. And thus, not surprisingly stocks headed lower once again.
This prompted me to clarify that the odds of recession are still very low. As proof I shared the Goldman Sachs outlook which only points to 25% odds of recession forming within the next year.
However, later on that same day found that was outdated information. They have actually revised that down to only 15% chance of recession given how most everything points to a soft landing.
Further, they believe the last rate hike has already taken place with the lowering of rates to start in the Spring of 2024. That is a touch later than most predictions…but close enough to mainstream assumptions that all point to a bull market ahead.
Do I agree with Goldman about no more rate hikes ahead?
I would say 50/50 versus getting one more quarter point hike in November. But even more important is the timing of them switching to lower rates.
I would be shocked if they made us wait til Q2 of 2024. I see that coming early to mid Q1 given that there are 6-12 months of lagged effects on Fed policy. (The longer they keep high rates in place…the more they risk recession).
Playing into all these prognostications of what the Fed will do, then we must also taking into account this week’s slate of inflation reports starting with CPI on Tuesday 9/13. Next up comes the lesser followed, yet still…
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