Tech Bellwethers..Recession is NOW

[target2019]

Another bear market rally where even bad news is good news? Last three fed rate announcement days have been huge up days for the market (followed by more downside).

"I think we better wait till tomorrow" - Jimi Hendrix.

 

[24601NoMore]

When did you sell, and at what price? Please post the details.

And post when you get back in. As the old saying goes, with market timing, you have to be (partially) right twice.

-ERD50

I sold many things at a variety of prices. Not possible to post all those details, although best I can recall, it was near the peak around end of March.

And to having to be right twice - you don't have to catch the bottom ("being right twice"). All you have to do is get back in on the way up after a big drop - and while not guaranteed, there are decent indicators to watch on that. Lot better than incurring 20-25% hit from here and THEN try to make it all back up.

A couple of comments:


Some members suggest the economy is not in recession. This is not “spin”. The NBER calls recessions, they have published their criteria for making the call, and the US economy does not meet all the criteria - for now. This definitely can change, and may do so, but so far has not.

While NBER is the agency who can "officially" declare a recession, most professional money managers and many in the Financial industry have long seen a recession as two consecutive quarters of negative GDP growth. And NBER is famous for being as much as a year or more "late" in retroactively recognizing and announcing recessionary periods. There was even a great thread on Twitter of all places today with people emphatically defending the 2 quarters -GDP viewpoint. (I actually expected the opposite so was pretty surprised). Apparently, the dictionary definitions and even the CFP Board define a recession as two Qtrs -GDP. Neither mentions NBER. So whether NBER officially declares something or not is kinda moot - because many Pro money managers are going to make portfolio decisions on their observations of economic indicators and not wait for NBER to declare or not declare something..

SPX is currently just a hair below 4,000. So you're saying we are likely to not see even a 15% overall increase over the next 5, maybe 10 years? Anything's possible, of course, but I find that very hard to believe. I could be wrong, but looking at the chart I don't see a single instance where SPX did not post an overall 15% gain within 5 years of a relatively sharp selloff.

I'm firmly in the buy and hold camp, which has been proven statistically over many years to be the best strategy. Sure, certain investors can guess right sometimes and come out slightly ahead by doing lots of buying, selling, and market timing. I won't be one of those people.

If we hit Mike Wilson's 3,000 target, SPX 4,500 would be a 50% increase from there. So, yeah - 5-10 years to go from 3,000 to 4,500 would not be out of the ordinary, recent wonky / unusual high return years aside. And while I know many of us don't hold Wall Street analysts in particularly high regard, I believe Wilson has been one of the most accurate of all of them in recent years.

I agree, it doesn’t matter that much and there’s no compelling need to act.

I think parts of the economy are growing and other parts struggling, so there’s evidence to be found to support just about any view. I do object when people try to discredit contrary views by mischaracterizing them or assigning labels.

What does surprise me is all this “recession calling” makes no mention of the inverted yield curve. It’s recession predictive powers are limited but clearly show bond investors see a slowdown and possible contraction ahead. From the FT

Great point. Yield curves are often very good predictors of economic downturns/recessions/whatever you want to call them. But I've heard it said often that it's not the inversion that's the signal, but the UNinversion to watch.

Considering Powell's statements today that we can't be in a recession because the job market is so strong..Here's another good thread (this from the awesome Jim Bianco) on correlation between previously "strong" job markets and prior recessions. Note that in every example given that the jobs market was "strong" at the start of a recessionary period..

Powell said we are not in a recession because the labor market is too strong. This was exactly the argument used by Arthur Burns 50 years ago. But as the orange boxes show, all three of the 1970s recessions started with positive payroll growth.

https://twitter.com/x/status/1552396151999135747

 

[Lakedog]

"I think we better wait till tomorrow" - Jimi Hendrix.

Guess I got ahead of myself as to the third one being followed by more downside -- but I do expect it will turn out to be accurate. We will find out soon.

 

[Dtail]

Sounds like market timing to me and perhaps you will be right, but not for me.

 

[eytonxav]

I believe markets can tolerate raising rates and still perform OK, but there is a point where all bets are off if rates go up too fast and too high and causes the economy takes a dump. What that point is in this cycle who knows? Anyhow I am not planning to do any selling myself as I still hold several years of cash.

 

[sengsational]

It’s recession predictive powers are limited but clearly show bond investors see a slowdown and possible contraction ahead.

Or could it be the bond fund investors are fleeing to cash and there aren't enough buyers for all of those crummy-rate debt instruments?

Admittedly, I really don't know how any of this works. I didn't change, and don't plan on changing, my asset allocation targets. To say that I "did something", I shortened the average maturity in my bond bucket.

 

[Taco]

...
Because the odds are high, IMHO, that we'll see SPX with the first digit being a "2" this year at some point.

Anything is possible, but I think 'below 3000 this year' will prove to be an overly gloomy forecast.

 

[Dash man]

In my Roth IRA, I have moved from individual stocks to ETFs, only because I’m tired of owning so many individual stocks. In my taxable accounts I’d pay a large tax bill on the over $1M in capital gains I have, so they’re not being sold.
I have enough safe money to get me through a downturn, even if it gets worse. So many pundits have opposite projections on whether the markets will bust or boom, I’m just going to relax and enjoy retirement. There’s nothing I can do about it anyway.

 

[maestro]

Recession vs. No Recession. That will be the big debate the next 3 more months. I won't trust 'the numbers' released this week. All you have to do to make a determination is go food or home improvement shopping, or watch the housing market, or watch the very 'subtle', if not 'unannounced', announcements of layoffs by big tech companies. That will dictate the next quarter of earnings, as this last quarter was pretty much insulated for corporations. Oh, and then there's the strength of the US dollar. Peace.

 

[NW-Bound]

I sold many things at a variety of prices. Not possible to post all those details, although best I can recall, it was near the peak around end of March.

And to having to be right twice - you don't have to catch the bottom ("being right twice")...

I agree with you here. When I sell something, it does not have to be at the top. And when I buy it back, it does not have to be at the bottom.

If I buy back cheaper than when I sold, I consider it a success, even if I still lose money. You see, I use buy-and-hold as a benchmark.

All you have to do is get back in on the way up after a big drop - and while not guaranteed, there are decent indicators to watch on that. Lot better than incurring 20-25% hit from here and THEN try to make it all back up.

Ah, but here is where we differ. I don't think the market will drop as much as you said above. Hence, I am still maintaining a 70% stock AA, and trade according to sector rotation.

 

[jurgs01]

The people who would get scared and sell based on some guy's post on the internet, are the same folks who would fomo back in after a 5% bear market rally at the top, which is probably why they shouldn't try to time things.

 

[Montecfo]

Recession vs. No Recession. That will be the big debate the next 3 more months. I won't trust 'the numbers' released this week. All you have to do to make a determination is go food or home improvement shopping, or watch the housing market, or watch the very 'subtle', if not 'unannounced', announcements of layoffs by big tech companies. That will dictate the next quarter of earnings, as this last quarter was pretty much insulated for corporations. Oh, and then there's the strength of the US dollar. Peace.

There is nothing to debate really.

Various opinions are why we have data.

 

[jm67]

I unfortunately didn't sell "everything" at SPX 4,600+. If we get back to 4,500 anytime soon, I plan to. Because the odds are high, IMHO, that we'll see SPX with the first digit being a "2" this year at some point. And with forecast equity returns of ~2% for the next 10+ years..Cash at ~4+% guaranteed is looking to be the superior investment for a long while.

Where do you get equity returns forecast as 2% for the next decade? Recessions usually last 12-18 months then we’re back to normal economic growth. Or is this the “US is turning into Japan” argument again?

 

[target2019]

Guess I got ahead of myself as to the third one being followed by more downside -- but I do expect it will turn out to be accurate. We will find out soon.

At this time I agree with "more downside" to come. Sifting through news, posts and personal feelings is probably not the best strategy. It's just a feeling I have, and I could cherry pick charts and videos that support my opinion, but not much of a reason to do that.

After all, we have real world conditions right in our back yards. In retirement I see charts and graphs that give a broad view of the economy. But my growing tendency is to see how the factions in the world try to shape my opinions.

Nothing earth-shattering in my comments, but thought I'd let you know where I might be coming from.

 

[copyright1997reloaded]

Considering Powell's statements today that we can't be in a recession because the job market is so strong..Here's another good thread (this from the awesome Jim Bianco) on correlation between previously "strong" job markets and prior recessions. Note that in every example given that the jobs market was "strong" at the start of a recessionary period..

Powell said we are not in a recession because the labor market is too strong. This was exactly the argument used by Arthur Burns 50 years ago. But as the orange boxes show, all three of the 1970s recessions started with positive payroll growth.

https://twitter.com/x/status/1552396151999135747

I've posted here on ER several times that using Employment data as a measurement of recession is meaningless. It is almost always lagging and typically doesn't turn up until after the damage is already visible in terms of economic growth/contraction.

The fact that the federal reserve was yet again going on about the strong labor market (in terms of unemployment) should give everyone pause about whether they are on top of things or again behind the curve.

Ask yourself this simple question: If the labor participation rate now was the same as just prior to COVID, what would the official unemployment rate be? In Feb 2020, it was 63.4. As of June 2022, 62.2. This means that 1.2% less of the population is working/"activity" looking for work.

Now it could be that lot's of people are simply so rich that they can just live off of the fruits of their previous labor and investments. In fact, some of them might be here on ER.org! But as the economy recovered from COVID shutdowns that number had been steadily climbing, but has now started turning down again.

Each of us needs to make our own assessments, but we also need to be careful about "Well, NBER hasn't called it a recession". That is meaningless and will only be seen well in the rear view mirror.

The bet one needs to make is whether the "downturn" is mild or severe. I see economic deterioration and numbers pretty much consistently coming in below even lowered expectations. But I also have posted here that I think the FED will "pivot" earlier than expected. I had said prior to the end of the year but even that might be too far into the future. That is the reason I haven't sold more (about 50% cash at the moment). Because when the market smells pivot (as it did yesterday), the reaction will be risk on w/the fed to the rescue. This is the primary reason why I don't think inflation will be beat. Yea, we will likely see lower headline numbers, but get back to 2%? (I don't think so, at least not with what I am seeing and expect to see).

Note: German CPI which is strongly correlated to our CPI just posted today. It "expectantly" (ha ha, the "experts" seem to be having problems these days) rose to 8.5% (from 8.2%, expectations were to have a downtick to 8.1%). Food prices contributed, up 14.8%. (Energy prices up 35.7% and they are no where near the gas levels they will need for winter - at least in terms of keeping their industry going.)

 

[freedomatlast]

This post reminds me of the poster here that sold all his equities and went to 90 or 100% cash early in 2020 and during March and April 2020 was listing all the reasons why everyone else was losing out if they didn't do the same thing. He went on about why it would be a long time before things recover and how this time was going to be different and he had all sorts of facts and figures from some financial guru as to why he was right. Then toward the end of 2020 and during 2021, we never saw another post about how he managed to buy back equities at just the right time.

I worked for decades in an industry that seemed to be an excellent 6 month leading indicator of where the market and economy were headed. If orders and profits started to decline, in about 6 months we'd generally see equities decline in value, and then other economic activity would decline as well. This pattern held true throughout the early 80's to present without fail. While I never acted on this because I don't consider myself a market timer, nevertheless, it was interesting to note the trends.

I'm now back consulting for the same industry. Orders, past dues and profits are at an all time high, and orders continue to increase at an increasing rate. Part of my j*b is to increase efficiency and output to meet this demand very quickly. Will things be different this time? I don't know, but I don't plan to do anything different this time around.

What I really like about these times we are in now is that we can finally get a decent safe return on the cash portions of our portfolios.

 

[Born2Fish]

This post reminds me of the poster here that sold all his equities and went to 90 or 100% cash early in 2020 and during March and April 2020 was listing all the reasons why everyone else was losing out if they didn't do the same thing. He went on about why it would be a long time before things recover and how this time was going to be different and he had all sorts of facts and figures from some financial guru as to why he was right. Then toward the end of 2020 and during 2021, we never saw another post about how he managed to buy back equities at just the right time.

I worked for decades in an industry that seemed to be an excellent 6 month leading indicator of where the market and economy were headed. If orders and profits started to decline, in about 6 months we'd generally see equities decline in value, and then other economic activity would decline as well. This pattern held true throughout the early 80's to present without fail. While I never acted on this because I don't consider myself a market timer, nevertheless, it was interesting to note the trends.

I'm now back consulting for the same industry. Orders, past dues and profits are at an all time high, and orders continue to increase at an increasing rate. Part of my j*b is to increase efficiency and output to meet this demand very quickly. Will things be different this time? I don't know, but I don't plan to do anything different this time around.

What I really like about these times we are in now is that we can finally get a decent safe return on the cash portions of our portfolios.

Well, I'm looking forward to reading your update if/when orders and profits start to decline!

 

[copyright1997reloaded]

This post reminds me of the poster here that sold all his equities and went to 90 or 100% cash early in 2020 and during March and April 2020 was listing all the reasons why everyone else was losing out if they didn't do the same thing. He went on about why it would be a long time before things recover and how this time was going to be different and he had all sorts of facts and figures from some financial guru as to why he was right. Then toward the end of 2020 and during 2021, we never saw another post about how he managed to buy back equities at just the right time.

I worked for decades in an industry that seemed to be an excellent 6 month leading indicator of where the market and economy were headed. If orders and profits started to decline, in about 6 months we'd generally see equities decline in value, and then other economic activity would decline as well. This pattern held true throughout the early 80's to present without fail. While I never acted on this because I don't consider myself a market timer, nevertheless, it was interesting to note the trends.

I'm now back consulting for the same industry. Orders, past dues and profits are at an all time high, and orders continue to increase at an increasing rate. Part of my j*b is to increase efficiency and output to meet this demand very quickly. Will things be different this time? I don't know, but I don't plan to do anything different this time around.

What I really like about these times we are in now is that we can finally get a decent safe return on the cash portions of our portfolios.

What is "This post" (since you don't quote it and your post is right after mine). No where did I say I went all cash. Nor will I, regardless of what I "think" is to come.

What is the industry you consult in? Some industries do tend to lead economic cycles.

 

[eytonxav]

Also interested to know the industry bell weather

 

[pb4uski]

... Some members suggest the economy is not in recession. This is not “spin”. The NBER calls recessions, they have published their criteria for making the call, and the US economy does not meet all the criteria - for now. This definitely can change, and may do so, but so far has not.

Exactly. There's little doubt that the economy has slowed and certain signals point to a recession, albeit mild thus far, but other signals seem contrary... that is why the NBER has not made the call as of yet... it is still too close to call.

But whether it is just a slowdown or is a mild recession, does it matter? If you knew it was one or the other would you do anything differently financially?

 

[copyright1997reloaded]

Exactly. There's little doubt that the economy has slowed and certain signals point to a recession, albeit mild thus far, but other signals seem contrary... that is why the NBER has not made the call as of yet... it is still too close to call.

But whether it is just a slowdown or is a mild recession, does it matter? If you knew it was one or the other would you do anything differently financially?

Even if the data wasn't mixed, the "NBER has not made the call as of yet..." would still be true. The GFC recession officially started December 2007, NBER did not declare it until December 2008. So, I doubt contrary signals are delaying a NBER statement.

Repeat after me: The NBER declaration of recessions is in the rear view mirror. If/when the NBER declares it to be so, WE WILL ALREADY KNOW.

Repeat after me: Having "good" unemployment and employment data is TYPICAL going into a recession. It is a lagging indicator.

 

[explanade]

In any case, MSFT and GOOG missed both top and bottom lines, and the market thus far is euphoric. Are we back in the good old times?

Another bear market rally where even bad news is good news? Last three fed rate announcement days have been huge up days for the market (followed by more downside).

I think they had good results in some divisions but bad ones in others leading to the market reaction.

Or they gave positive guidance for upcoming quarters or rest of the year.

AAPL had modest year over year improvements but they guided optimistically so it's been up since reporting a day or two ago.


I've held AAPL and GOOG through 2008 and my recollection is they both grew or if they dipped, it didn't take them long to recover. I don't believe they ever dipped below the purchase price.


Big Tech companies aren't like the big banks, too big to fail.

However if they did fail, there's probably high correlation that the economy and the world as a whole is in trouble.

 

[Aerides]

...

Repeat after me: The NBER declaration of recessions is in the rear view mirror. If/when the NBER declares it to be so, WE WILL ALREADY KNOW.

Repeat after me: Having "good" unemployment and employment data is TYPICAL going into a recession. It is a lagging indicator.

ok and so, what are you doing differently, if anything, if we are or are not?

 

[pb4uski]

Yeah, I'm not sure why some posters are getting so excited about this. Perhaps they have some political point that they are yearnng to make once a recession is officially declared. I dunno.

 

[copyright1997reloaded]

ok and so, what are you doing differently, if anything, if we are or are not?

First, I'm tired of the endless word games taking place. There is one and only one occurrence that I know of where we've had two quarters of negative GDP growth in which it wasn't a recession, and that was right after WW II. Now we have Wikipedia and other sources being edited to remove definitions because it causes political discomfort.

Having said that, my plan and actions are independent of what the talking heads speak, or even whether everyone around me talks about how nice the emperors clothes are when I can see nakedness.

"When you find yourself in a hole, the first thing should be to stop digging." THIS is my issue with the mass denial we have in society, and why the happy talk about employment and no recession and everything is great is a problem. I can't do anything about it, other than b*tch here and more importantly prepare myself as best as possible given the current course and speed.

I don't pretend to know the future - all I can do is assess risk and probabilities, and adapt quickly if my hypothesis is incorrect. My thesis is that most of the fed action is talk - QT has been minimal so far and the nominal rates are FAR below the inflation rate. They will play this game as long as they can, hoping that the economy magically cools w/o significant unemployment issues. However, I think they will pivot before the end of the year because they will finally see the deterioration (even with "sticky" inflation) and we still have fiscal stimulus offsetting monetary tightening, both from the ongoing deficit and also via more "inflation fighting" spending programs. If I thought the Fed and government were truly going to tame inflation, I believe it would require a severe recession (worse than 2008/09/10). Given "they" don't want a repeat of the Great Depression, they will err on the side of stimulus, thus my believe they will pivot earlier than expected.

I may be right or may be wrong about the above. I don't post here because I think I will convince everyone of my genius ability to predict the future - I can't. Heck, I've given up long ago trying to convince just about anyone of anything. I'm posting my thoughts mostly to express them to myself, and as a way of getting others ideas and thoughts.

Below I will lay out where I am as of today:
I am about 50% cash, which is high for me. Typically I run somewhere between a 60 to 70% equity allocation. I have no long term fixed investments - it is all short term (yes, inflation is killing it) or inflation adjusted (TIPS, iBonds). My pension is a good size, but fixed (the no colar is a problem, but what can I do about it). In my tax-deferred accounts, I've raised a lot of cash over the last year - but still have some of it invested in equities. In my non-tax-deferred accounts, I have taken a more measured approach because I have large LT capital gains (over a million $). So I need to be careful of selling in terms of tax ramifications. [I have taken some LT CG, approximately 40k or so YTD.] So a good chunk of that remains in holdings that WILL GO DOWN if the market goes down, but also (hopefully) allows me to hedge if my thesis is correct. Thus, I need to keep $ in stocks and hope I am wise enough to increase my allocation for the pivot.

I also have hedged a bit in commodities and precious metals. While I have Gold purchases from 2013, etc., most of my purchases have been more recent and it is more there if things get really bad vs. current conditions. [I have about 5-6% in PM's. Not enough to live forever, but enough for a couple years if absolutely necessary.]

Each day I assess things. We are rallying, am I wrong? The market is falling, am I too long? Or, is it an opportunity to pick up something low in its trading range? Is this the end of the bear market (e.g. we will have a very mild recession and then upward) or just a bear market rally (e.g. the market rallied 48% from 11/13/1929 to April 1930)? Yes, I know the market will rally BEFORE economic conditions show the all clear. Which is it? We will only know in retrospect, but I will respect this rally, try to play it, but at the same time keep a short leash on positions. (For example, I trimmed things Wednesday-Friday). Did I sell everything I had bought over the last month? No - but I did take some profits because they were there for the taking. Should I buy other things - are they going to join in? And so on. [This is the active investing, market strategy and alternative assets area. ]

Finally, back to your original question - which I can summarize as "At this point, what does it matter?" The truth matters, and crafting policy that recognizes economic conditions matter.