Market Sentiment - Recession Length

[plex]

It isn't that complicated. We are in a bear market obviously, the SP500 went past -20%, however long that lasts or however further down it might go. We are on the edge of an official recession, two quarters of negative growth. Last quarter was -1.5%, and this quarter has a consensus rate between -1.4% to -1.5%, down from 1.1% a month ago, with no likely upswing in sight. In other words it has not happened yet, but it quite likely to be declared as one, and that means we have been quite likely living in one since January.

As for my speculations, I am not surprised by the current situation. Recessions come in cycles, and we were long due for one. Recessions usually occur because of systemic problems with the market, rather than extraordinary events that often cause quick dips and recoveries. Valuations were crazy, money supply was extreme, mania was clearly present in certain investing areas (people were getting their threads deleted for even bringing that stuff up among other things), housing was spiking hard, unemployment was getting extremely low, inflation was spiking even before the energy shock, etc.... Those were not signs of a healthy economy.

As for how long it will last, I agree it is not like the 70's, which were preceded by huge real wage growth, rising inflation, then finally getting sent into complete turmoil by multiple energy shocks. As such, both inflation and the recession can be brought down as long as the Fed acts aggressively enough. I expect both will calm down sometime during 2023, probably the market first, then the economy, then finally inflation. People are currently seeing hiring freezes, but I expect very soon we will be seeing huge spikes in layoffs, likely by the end of 2022 we will see unemployment shooting up several percent at least, and the market will enter its steepest and last big decline. There will be bankruptcies popping up, especially in tech. Housing will drop, not quite as badly as 2008, but it won't be pretty, housing will probably drop for the next 2-3 years, level out, and then start quickly climbing again since it wasn't quite the epicenter of the cause, though it was actually involved quite a bit with QE. I don't think most people understand how much the housing market was propped up by QE, preventing a return to more normal mortgage rates, and causing a huge surge in investment house buying, creating a temporary hot new market that is now falling completely apart.

 

[HarryHawk]

It's a meaningless discussion.

......

Things are not fine, and they are getting even more not finer by the day.

.....

But hey, everything is fine.
(ETA: One IPA in. )

I have no idea how things may or may not relate to the performance of the stock market. I do know that nearly everywhere I look, I see things I have never seen before in my 70 years of seeing stuff.

- My son has at least a several month wait before he can purchase a new car

- My mother just spent two days on a gurney in the emergency room waiting for a bed to become available in the hospital since they have closed down 3 floors due to lack of staff

- My son is shopping for a friend of his who just had a baby. The friend is unable to find formula to feed the baby, so when my son finds some, he buys it and mails it to his friend.

- I see plenty of empty shelves everytime I go grocery shopping

- I have friends who send their kids to wait in line to buy gas at Costco because the lines are so long.

- Just saw on the news that my vehicle has a safety related issue so it is being recalled, but parts to fix it may not be available until next year

None of these types of things look to be "just fine" to me. Quite honestly, these are the sort of things I've always associated with third world countries, not in the greatest country in the history of civilization.

Of course I am old and crotchety, so what do I know?

 

[Montecfo]

Well, in the Reuters article above, three ex-Fed members were all a bit more blunt than the current members as saying recession likely. Powell says "soft landing", but "Bill Dudley, who ran the New York Fed until 2018, also says the Fed has been late to raise rates and that a recession will result." So I guess time will tell who is correct.

The interest rate posture and the state of fhe economy are two separate things. If they were not, they would not day recession "likely" since that would be redundant.

We may indeed have a recession, even of policy never becomes restrictive. Similarly, we could avoid recession even if policy is restrictive..

This is because there are two separate things under discussion.

 

[joesxm3]

Thanks for all the interesting thoughtful replies.

I guess I am thinking in terms of the bear market, since that is how the recession will directly affect me.

I do think that we are in a recession, just waiting for it to be confirmed by meeting the official definition. I am not sure that the government will admit that we are in one before the upcoming election.

I also think that inflation is much higher than the stated 8.6%. I just bought a box of Quaker Oats and it was over $9.00.

My thinking is trending towards the idea that the market will indeed go lower and as was mentioned is likely to overshoot on the downside. Given the beating that my beloved tech stocks have taken I find it hard to think that they will fall further, but I think that is more likely than not.

I am taking my foot off the gas peddle on buying equities, but will lightly DCA into VTI and SPY.

Since I think my eyes were bigger than my stomach jumping into the tech stocks early and they may still drop farther, I think I may try to sell 10% or 20% of a given name at what seems to be a local top or relief rally and then buy back lower. If I miss, I will still have a reasonable allocation.

I was reviewing the recent Youtube commentator that got me thinking this way and decided that he might be just another "doom is coming" guy, but he did seem to make sense although the only take-aways from the two 50 minute videos I watched was "doom is coming and it is a life changing opportunity if you do it right" and "really solid companies are not going out of business, so you can buy them at deep discount and you don't need to gamble buying less solid companies hoping that they survive."

I have been following the bond threads and I think that once we think that rates are near the top, I will look into setting up a bond ladder to replace the bond funds that I dumped last year. One commentator I saw was saying that once they raise the rates, they will be tempted to lower them again to repair the damage caused by the rate increases that made sense.

Another guy that I think is solid was saying that he feels that the market will not rebound until we hit peak inflation. That seems to make sense. We may still be in recession, but once the inflation rate peaks the market will begin to recover.

Thanks again.

 

[marko]

This chart seems to stop around 2010 or so but I think it's relevant. It shows how Bear markets and recessions are generally short lived compared to Bull markets.

It also shows that Bear markets do not always involve a recession and vs/vs

We can only hope that history is a guide this time.

 

[arcyallen]

I am considering selling a portion of my holdings (at a loss) with the idea of buying them back at a lower price down the road.

Keep two things in mind if you decide to do this:
1) Statistically it rarely works.
2) This would be based on you believing you know "what's going to happen". Take out "the market", "recessions", etc. And read all these posts. And then ask yourself "Am I confident about how the people in this thread will behave in the unknown future?" and then extrapolate that to all the entire investor pool (aka, the market).

I know it'll feel smart when you push that sell button. It rarely ends up being a smart choice in hindsight. The people on this thread are crazy and they're likely the sanest of the bunch. I know I have no idea what my fellow investor is going to do. Maybe you don't either.

This message brought to you by The Buy And Hold Club. "Buy And Hold: It only feels dangerous."

 

[Magus]

Unfortunately I don't think you are wrong but I hope you are... However, I do believe that energy cost is one of the biggest problems we are facing now.. But that's just today.

Without a steep recession/depression, energy costs are unfortunately likely to continue to rise, especially if we continue to escalate things with Russia. And domestic producers are not going to invest here for obvious reasons. And none of the recent rise in energy has made it into CPI (or even a lot of PPI) yet except gasoline currently. Most price increases from firms like mine are from inflation last year and very early this year.

Most firms in the US historically only look at pricing once a year but are beginning to do so semi-annually and I expect soon quarterly (or faster) which is exactly how inflation becomes entrenched. I think between covid and now inflation its safe to say don't always trust the so called experts. It's honestly comical how many things they've got wrong over the last 2.5 years. I don't know why they have any credibility with folks at this point - and you can tell its fraying though.

 

[target2019]

Thanks for all the interesting thoughtful replies.

I guess I am thinking in terms of the bear market, since that is how the recession will directly affect me.

I do think that we are in a recession, just waiting for it to be confirmed by meeting the official definition. I am not sure that the government will admit that we are in one before the upcoming election.

I also think that inflation is much higher than the stated 8.6%. I just bought a box of Quaker Oats and it was over $9.00.

My thinking is trending towards the idea that the market will indeed go lower and as was mentioned is likely to overshoot on the downside. Given the beating that my beloved tech stocks have taken I find it hard to think that they will fall further, but I think that is more likely than not.

I am taking my foot off the gas peddle on buying equities, but will lightly DCA into VTI and SPY.

Since I think my eyes were bigger than my stomach jumping into the tech stocks early and they may still drop farther, I think I may try to sell 10% or 20% of a given name at what seems to be a local top or relief rally and then buy back lower. If I miss, I will still have a reasonable allocation.

I was reviewing the recent Youtube commentator that got me thinking this way and decided that he might be just another "doom is coming" guy, but he did seem to make sense although the only take-aways from the two 50 minute videos I watched was "doom is coming and it is a life changing opportunity if you do it right" and "really solid companies are not going out of business, so you can buy them at deep discount and you don't need to gamble buying less solid companies hoping that they survive."

I have been following the bond threads and I think that once we think that rates are near the top, I will look into setting up a bond ladder to replace the bond funds that I dumped last year. One commentator I saw was saying that once they raise the rates, they will be tempted to lower them again to repair the damage caused by the rate increases that made sense.

Another guy that I think is solid was saying that he feels that the market will not rebound until we hit peak inflation. That seems to make sense. We may still be in recession, but once the inflation rate peaks the market will begin to recover.

Thanks again.

I agree with you that we are 50% into the required confirmation of recession. However, if the government is witholding information, how oo we know there was one negative quarter? The horse is not just getting out of the barn. From time to time I take a glance at fidelity Institiutional to frame the economy and what's coming. The explanations on the two pages (May 2022) are good enough IMO to keep me aware. The business cycle is gonna cycle...
https://institutional.fidelity.com/app/literature/item/9905694.html

Your youtube guys have a vested interest in what they say. More sensational "news" = more clicks = more reward. For them. But that is not your reward.

I am working on a portfolio that has all the great tech stocks, some bought near their peak, IMO this cannot be turned around by selling and buying lower. But creating an asset allocation that is more diversified will turn it around slowly. Of course YMMV.

 

[copyright1997reloaded]

The people on this thread are crazy and they're likely the sanest of the bunch. I know I have no idea what my fellow investor is going to do. Maybe you don't either.

Since I am one of the crazy people on the thread, I will comment...and for the most part agree.

I think things might get really [-]sh*tty[/-] ugly, yet I have not sold off all my stocks. I've lightened up on some things, and shifted (a bit) where I have allocations w/i equities, but for the most part still have a ton of exposure to equities (especially given my commentary). I don't tally every day, but I'd guess I am still 50+% equities.

So why haven't I sold everything given my pessimism?
1) Because I don't KNOW the future, and I might be wrong.
2) Because in the LONG RUN, I believe that equity markets are one of the best, most efficient, allocators of capital and result in increased standards of living (and is reflected in profits for those who invest).
3) Because while I believe the pain to beat inflation and in general an asset bubble is STILL not reflected, I think that political pressure to take the "easy way out" when the pain is reflected in unemployment will be overwhelming and they will stop QT and stop hiking. If this scenario plays out, I MUST have significant equity exposure as an inflation hedge.

Also + on your statement: "Am I confident about how the people in this thread will behave in the unknown future?" Given all the above, I could determine at any point my thesis is WRONG, and because of that need to adjust.

Final comment, mostly based on #3 above. While I have adjusted my allocation (perhaps 10%-15% in total), I also am investing money for my child who is working. In DC's case, I have a Roth IRA set up, and EVERY WEEK I am FULLY INVESTING 1/3 of the net pay, i.e. a systematic buying plan. Again, the why on this is because as bad as I think it might get, I hope that 5+, 10+, 30+ years the market will be MUCH higher than now. And if I am wrong, the money invested now really won't matter in the scope of things.

 

[daylatedollarshort]

The interest rate posture and the state of fhe economy are two separate things. If they were not, they would not day recession "likely" since that would be redundant.

We may indeed have a recession, even of policy never becomes restrictive. Similarly, we could avoid recession even if policy is restrictive..

This is because there are two separate things under discussion.

I'm going to put my bets on what the ex-Fed members are saying, but you do you.

 

[daylatedollarshort]

I think that was an entirely different situation and not remotely comparable to today. Many of the actions, though, of the Fed is because they don't want to end up in that kind of situation.

Larry Summers said in a recent podcast that the inflation situation today is lot like the 70s; " I’m probably as apprehensive about the prospects for a soft landing of the U.S. economy as I have been any time in the last year. Probably actually a bit more apprehensive. In a way, the situation continues to resemble the 1970s, Ezra. In the late ’60s and in the early ’70s, we made mistakes of excessive demand expansion that created an inflationary environment.And then we caught really terrible luck with bad supply shocks from OPEC, bad supply shocks from elsewhere. And it all added up to a macroeconomic mess. And in many ways, that’s the right analogy for now." https://www.nytimes.com/2022/03/29/podcasts/transcript-ezra-klein-interviews-larry-summers.html

 

[DawgMan]

Long term, I am a "half-full" kinda guy, however, as others have said, at some point someone has to pay the bill for all this free money pumped into the economy. Short term, I believe we are in for hard landing and perhaps a short (18 - 24 months) deep recession, but then a solid recovery once all the excess is weeded out and we are "reset". I also agree that the current energy policy has only exasperated the current situation which is one reason we may prolong our problems for the next 24 months. We have not begun to see the real effects of inflation yet, but the dominos are starting to fall and will hit every sector of the economy/working class. The wealthy will pull back on luxuries due to the negative "wealth effect" of seeing their NW go down on paper. The middle class will feel the squeeze of higher daily living expenses. It's all coming, it just has not hit books yet. There is part of me that says lets go ahead and flush this puppy out sooner vs later, but it may be a slow burn over the next 12 months.

Then again, what do I know. IMHO

 

[Montecfo]

My base case is not for a long deep recession but with all the factors we have at work it is possible.

But some silver linings I recall from prior recessions: easy to get into your favorite restaurants, good deals on vehicles, dramatically lower prices on 2nd or 3rd homes in vacation spots.

I am sure there are others.

 

[corn18]

For retired folks, I would think a recession would be better than sustained high inflation. At least that's what my model says.

 

[Montecfo]

For retired folks, I would think a recession would be better than sustained high inflation. At least that's what my model says.

I agree. Many benefits if you are retired. Or even working with a secure job.

Market decline is much more worrisome if you are living off your investments.

But if you planned well that should not be a big deal either. These things shall pass.

 

[MichaelB]

But some silver linings I recall from prior recessions: easy to get into your favorite restaurants, good deals on vehicles, dramatically lower prices on 2nd or 3rd homes in vacation spots.

I am sure there are others.

During recessions it is much easier to find and hire qualified tradespeople for home projects.

 

[38Chevy454]

I believe that oil prices (really it is energy as a whole) are a bigger effect than many in government recognize. Until the cost of energy comes down, the interest rates have only partial ability to lower inflation.

Cost of energy affects everything. Prices keep going up in a cycle until the price of energy stops increasing. Current government policy is restrictive to bringing the price of oil down; while at the same time no real cost effective or readily available substitute alternative is in place.

 

[Koolau]

I believe that oil prices (really it is energy as a whole) are a bigger effect than many in government recognize. Until the cost of energy comes down, the interest rates have only partial ability to lower inflation.

Cost of energy affects everything. Prices keep going up in a cycle until the price of energy stops increasing. Current government policy is restrictive to bringing the price of oil down; while at the same time no real cost effective or readily available substitute alternative is in place.

Agree completely. My gut tells me that no amount of FED machinations will lead to a soft landing. I'm not even sure the FED will see the inflation problem through. I'm guessing they'll get us to 5% and declare victory.

Be that as it may, I believe there is one possible way out of all of this and it will be politically unpopular among those with the most political clout - but popular with everyone else.

Without giving up on green energy, remove virtually all restrictions on FF development (drill, frack, pipe, etc. with the blessing of the gummint.) Officially limit the private and NGO suits that can be filed to delay/stop exploration and development. Think "Alaska Pipeline" and you get the idea.

Maybe set an expiration for this new age of "un-enlightenment" like 10 years. SWAG - prices of oil will tank the day after the announcement without one extra drop of oil being pumped. The ripple effect will even possibly head off a hard landing.

But, don't worry, we won't do this. It's just a fantasy so YMMV.

 

[finnski1]

Well even the oil stocks are now getting clobbered. My COP stock alone is down 23% in less than 7 trading days. Ouch. I guess now I'm glad I already had sold 2/3rds of it

 

[corn18]

Agree completely. My gut tells me that no amount of FED machinations will lead to a soft landing. I'm not even sure the FED will see the inflation problem through. I'm guessing they'll get us to 5% and declare victory.

Be that as it may, I believe there is one possible way out of all of this and it will be politically unpopular among those with the most political clout - but popular with everyone else.

Without giving up on green energy, remove virtually all restrictions on FF development (drill, frack, pipe, etc. with the blessing of the gummint.) Officially limit the private and NGO suits that can be filed to delay/stop exploration and development. Think "Alaska Pipeline" and you get the idea.

Maybe set an expiration for this new age of "un-enlightenment" like 10 years. SWAG - prices of oil will tank the day after the announcement without one extra drop of oil being pumped. The ripple effect will even possibly head off a hard landing.

But, don't worry, we won't do this. It's just a fantasy so YMMV.

It really is that simple. A comprehensive 30 year plan will get us off fossil fuels in an orderly fashion that supports economic growth and full employment. 10 years of your plan so we don't give a crap what happens to oil prices. The economy will boom. Spend lots of money on smart green stuff. Then 20 years where we phase out fossil fuels completely. Will need to get the rest of the world on board because we can't do it alone.

I figure by 2050, we will know whether fusion will be feasible and then by 2080, we will have an unlimited supply of clean energy powering all of our green things. What a great place to leave for our grandkids.

 

[Chuckanut]

Market decline is much more worrisome if you are living off your investments.

But if you planned well that should not be a big deal either. These things shall pass.

+1

I'm back to beating the drum for diversification of sources of income. IMHO, it's nice to have at least three, and be able to survive decently on any two. For example: SS, stocks/bonds, and a rental property or two.

 

[marko]

I keep going back to the last day of Feb 2009 when my neighbor decided that she had had enough and, being smarter than everyone else, sold her entire portfolio for cash.

The following week.....well.....

I'm holding, waiting and just battening down the hatches until this blows over. Dividends keep paying the bills.

 

[Freedom56]

Breaking news...

A- The world is not ending
B- For the first time in a long time, savers will be able to earn income without investing
in risky assets
C- Long term bonds are not discounting a total collapse of the economy

What is happening is that a massive bubble created globally by trillions of dollars of stimulus is collapsing. So what can we expect going forward:

A- Rates will rise and the Fed will once again slam the brakes at the first sign of a slowdown.
B- The rotating bubbles in the equity markets will collapse (concept stocks, crypto, SPACs, commodities, meme stocks)
C- Real companies with real earnings will live on
D- The conflict in Ukraine will continue until the Dictator in Russia gets whacked or is dead from natural causes. His death will trigger a strong counter-trend rally.
E- Markets bottom when news looks the bleakest in the present but Markets discount the future. Think back to 2009 and 2020.
F- The narrative on inflation will soon change to a narrative on deflation by the end of 2022.

 

[Magus]

Breaking news...

A- The world is not ending
B- For the first time in a long time, savers will be able to earn income without investing
in risky assets
C- Long term bonds are not discounting a total collapse of the economy

What is happening is that a massive bubble created globally by trillions of dollars of stimulus is collapsing. So what can we expect going forward:

A- Rates will rise and the Fed will once again slam the brakes at the first sign of a slowdown.
B- The rotating bubbles in the equity markets will collapse (concept stocks, crypto, SPACs, commodities, meme stocks)
C- Real companies with real earnings will live on
D- The conflict in Ukraine will continue until the Dictator in Russia gets wacked or is dead from natural causes. His death will trigger a strong counter-trend rally.
E- Markets bottom when news looks the bleakest in the present but Markets discount the future. Think back to 2009 and 2020.
F- The narrative on inflation will soon change to a narrative on deflation by the end of 2022.

I agree with all of this except D & F. D There is no telling what the situation in Russia will be in that scenario, and a huge number of them could take a lot of oil and gas the world desperately needs to keep inflation down off the market for a very long time. And you could always get someone far worse than Putin to fill the power void, and no telling on potential retaliation in the "whacked" scenario. History is full of examples where this happens. Yes, a peaceful transfer of power to more of a republic or democracy is a possibility but seems like a below 33% chance IMO.

F - just way too much inflation in the pipeline. You should look at PPI closely - the further out is showing 40% inflation, with final up 11%. And unlike most times, we'd need to burn through 6 million jobs just to be at neutral on jobs (we lost 8.8 million jobs in 2008-2009)

 

[GenXguy]

F- The narrative on inflation will soon change to a narrative on deflation by the end of 2022.

There might be some things that come down in price, but on average, you're going to see prices continue to rise, so that's still inflation. Inflation is running very hot, and the FED was late in trying to address it. It won't even be down to their target of 2% by the end of the year, let alone deflation. Of course, there's always someone "talking" about "deflation," but actually seeing it in the CPI and core inflation numbers is another mater.