Market Sentiment - Recession Length

[joesxm3]

Lately I have been starting to think that this recession will continue at least until the end of the year and probably into 2024.

Looking at the thread with the charts of other market drops compared to this one, I am getting the feeling that we might be just at the start of the decline and will go down for several or more months before things start to go back up.

I am of the opinion that as things progress, a lot of solid companies will have stock at extremely attractive prices that in a few years will look like absolute steals.

I was wondering if others were thinking along these lines.

Wanting to increase my equity allocation from the 22% or so I had, I probably rushed in too early as I was watching the tech stocks do what seemed to be a significant drop.

I still have conviction in these names, but 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. I realize that I run the risk of selling them just as they go up, but I am talking about maybe 20% of a given stock holding and my general trend would be to accumulate as we move through the recession and the lower market prices.

An alternative to selling might be to do like NW-BOUND and sell a covered call to either grab the premium or to sell the underlying if it goes up.

At the moment I am about 34% equities and I still have a sizable chunk of cash in reserve. I am starting to think that if we see a deep drawdown and I can be patient enough that I may want to increase my equity exposure up to as much as 50% or 60%.

I do plan to keep about 2/3 of my equity exposure in SPY and VTI so I do not run off the cliff like a crazy person.

Any thoughts?

 

[W2R]

I tend to think we are in for a long economic downturn, which has barely gotten started. I just hope it doesn't last for more than a year or two.

But then what do I know? Absolutely nothing. The above is just based on hunches, not on logic or fact. I'm a "buy and hold"er, so you won't see me act on my hunches.

 

[MichaelB]

The US economy is not in a recession. The economy declined slightly in 1Q, is flat so far in Q2, but employment and spending are healthy and show no sign of recession.

 

[copyright1997reloaded]

The US economy is not in a recession. The economy declined slightly in 1Q, is flat so far in Q2, but employment and spending are healthy and show no sign of recession.

You keep saying this, but as I noted before recessions announced in retrospect. The closest we have is the unofficial Atlanta GDP now estimates, which have now fallen to 0.0% for 2Q, down from +0.9% on 6/8/22 and over +2% less than a month ago. The trend here is not your friend.

For all, here's a link to the Atlanta Fed GDP now estimator, so you can watch the deterioration of data in (semi) real time: https://www.atlantafed.org/cqer/research/gdpnow

ETA: And as I've mentioned over and over, employment is a lagging indicator, and even today we see spending being impacted in retail sales (which would be worse adjusted for inflation)

 

[Cayman]

Thank You

The US economy is not in a recession. The economy declined slightly in 1Q, is flat so far in Q2, but employment and spending are healthy and show no sign of recession.

thank you. We may be headed there but we aren't there now.

 

[MichaelB]

You keep saying this, but as I noted before recessions announced in retrospect. The closest we have is the unofficial Atlanta GDP now estimates, which have now fallen to 0.0% for 2Q, down from +0.9% on 6/8/22 and over +2% less than a month ago. The trend here is not your friend.

For all, here's a link to the Atlanta Fed GDP now estimator, so you can watch the deterioration of data in (semi) real time: https://www.atlantafed.org/cqer/research/gdpnow

ETA: And as I've mentioned over and over, employment is a lagging indicator, and even today we see spending being impacted in retail sales (which would be worse adjusted for inflation)

I keep saying it because that’s what the data says. If the NBER calls it a recession, I’ll be proven wrong and admit to it. Otherwise, with strong employment, consumer demand and business investment, we’re in a growth environment.

Employment is a lagging indicator but hiring is not, and hiring is strong. Retail sales are a great leading indicator for recession and right now they are strong.

Inventory adjustments are probably the reason for the irregular GDP numbers, and that may continue thought the summer.

 

[NW-Bound]

If we enter a recession, it may or may not be a bad one. I dunno.

But I don't see us having a market bull run like we did the last couple of years. That would defy logic and mean a new "Mother of all market bubbles".

But things can get crazier and crazier. Plenty of weird things have happened in life that I could not foresee.

 

[lawman]

With all the other good indicators am I the only one that thinks this drop in the market is primarily the result of excessive stimulus from the last two years?

 

[Magus]

I tend to think we are in for a long economic downturn, which has barely gotten started. I just hope it doesn't last for more than a year or two.

But then what do I know? Absolutely nothing. The above is just based on hunches, not on logic or fact. I'm a "buy and hold"er, so you won't see me act on my hunches.

Agreed and agreed

 

[Magus]

You keep saying this, but as I noted before recessions announced in retrospect. The closest we have is the unofficial Atlanta GDP now estimates, which have now fallen to 0.0% for 2Q, down from +0.9% on 6/8/22 and over +2% less than a month ago. The trend here is not your friend.

For all, here's a link to the Atlanta Fed GDP now estimator, so you can watch the deterioration of data in (semi) real time: https://www.atlantafed.org/cqer/research/gdpnow

ETA: And as I've mentioned over and over, employment is a lagging indicator, and even today we see spending being impacted in retail sales (which would be worse adjusted for inflation)

US retail spending for May that came out today was -1.3% adjusted for inflation as well.

Retail sales are a great leading indicator for recession and right now they are strong.

I take it you didn't see today's #s for May? Down 0.3% not adjusted for inflation nor gas prices skyrocketing. Adjust for those two things and it was down 2% in one month. Annualized that's a huge decline.

 

[audreyh1]

With all the other good indicators am I the only one that thinks this drop in the market is primarily the result of excessive stimulus from the last two years?

Exactly. More than the last two years - this has been going on for a looooong time.

The stock market pains are mostly due to interest rates moving off 0.

Whenever interest rates are kept very low for a long while, the stock market gets massively bid higher. So here we are experiencing that hot air coming back out.

 

[misanman]

Local government units in my geography are still arguing about how to spend their stimulus money. So I don't think all "juice" to the economy has been injected yet. There is also the moratorium on student debt repayment, which also could be acting as a stimulus.
These two things could help keep things going for a while, or at least slow the downturn.

 

[corn18]

Seems we should look to the 70's and 80's for some historical insight. I think we are in a recession now and are in for 15-20 years of stagflation. Unemployment will go up and inflation will stay high for a long while.

 

[Aerides]

We are in a something: A slowdown, a sell-off, etc., but not technically a recession. "Lasting more than a few months" is somewhat arbitrary; I like the UK definition of 2 quarters.

But either way, the employment status does not add to the equation, and we have a long way to go before the economy is shedding jobs.

So perhaps the real questions here is more..."Recession-smession when will my money start making money again?" (or, at least, stop dropping).

And well if I knew that answer.....hahahahah I'd be on TV.
My gut says we'll be bouncing along the bottom in late 4Q/1Q next year then get back to some recovery in the markets.

 

[Dtail]

With all the other good indicators am I the only one that thinks this drop in the market is primarily the result of excessive stimulus from the last two years?

More than 2 years now, or is there a different message you wish to state?

 

[MichaelB]

With all the other good indicators am I the only one that thinks this drop in the market is primarily the result of excessive stimulus from the last two years?

Not at all, and my guess is some people confuse economic activity with asset prices. Bond and equity markets are declining, but economic activity continues and is strong.

The NBER defines a recession thusly

a significant decline in economic activity that is spread across the economy and that lasts more than a few months.

There is no “significant decline”.

The economy is still adjusting from a sharp pandemic downturn followed by an equally sharp recovery, which has really never happened before. It has had significant impact on inventories, and this affects GDP measures.

Strip out the inventory effects and the underlying economic activity is solid. It may slow as inflation continues to wind its way thought the economy, but that is a slowing, not a recession.

 

[pb4uski]

I think of it this way, if the economy can't tolerate a 2% increase in interet rates spread out over 3-4 months without going into a recession then the economy probably wasn't all that great to begin with.

I hope and think the Fed will focus on its dual mandate of employment and inflation, and if Wall Street goes wiggy, so be it... the stock market is not the economy and the economy is not the stock market.

 

[daylatedollarshort]

The Fed has been saying they may take interest rates into "restrictive territory", which means restricting economic growth. Is that another way of saying recession? I looked up the definitions of recession and "restrictive territory" and they looked pretty similar.

 

[copyright1997reloaded]

I think of it this way, if the economy can't tolerate a 2% increase in interet rates spread out over 3-4 months without going into a recession then the economy probably wasn't all that great to begin with.

It can't and it wasn't.

This economy has had a "sugar" high for quite a while, but was really ramped up w/the covid-era and onward stimulus.

In other good/maybe worse news, I don't think the fundamental "sugar" disease issue is limited to the United States. I think we should all be following Japan very carefully in terms of their currency and the BOJ's seemingly endless crazy need to support (limit) yields @ 0.25% by buying bonds (i.e. printing money to do so). The play here is sell these bonds (BOJ buys them at inflated prices, i.e. reflecting 0.25% interest rate), take the JPY$ from the sale (short sale) and use it to purchase US $ treasuries at higher rates. This drives the JPY $ lower (and USD higher). We are seeing a real-life MMT kind of thing in play, and I don't think the results will be good.

ETA: Forgot to mention another issue of note (which might not be well known here). The ECB just had an emergency meeting because they are starting to see a blow out in spreads between countries like Germany and their southern neighbors (e.g. Italy, Greece). This indicates stress on the system.

 

[Magus]

I think of it this way, if the economy can't tolerate a 2% increase in interet rates spread out over 3-4 months without going into a recession then the economy probably wasn't all that great to begin with.

I hope and think the Fed will focus on its dual mandate of employment and inflation, and if Wall Street goes wiggy, so be it... the stock market is not the economy and the economy is not the stock market.

There is evidence of things slowing down already - more in UK though. See May retail sales, June Univ of Mich consumer sentiment survey at record low, Homebuilder sentiment dropping a lot, fixed investment spending down 8% in q2 (Atlanta fed estimate today). Gas consumption down 4% etc. margin compression at target and Walmart due to inventory issues from lackluster sales in some categories etc

What’s not normal though is the massive starting point of excess jobs out there nor the high inflation. I for one do not think the fed will be able to engineer a soft landing with 2-3% interest rate hike - maybe not even 5-6%, which is still a negative real rate

 

[daylatedollarshort]

I for one do not think the fed will be able to engineer a soft landing with 2-3% interest rate hike - maybe not even 5-6%, which is still a negative real rate

That is really the elephant in the room, isn't it? Volker took interest rates to 4% above inflation to finally get it to end. That is a huge spread from where we are now. Interesting times.

 

[SnowballCamper]

With all the other good indicators am I the only one that thinks this drop in the market is primarily the result of excessive stimulus from the last two years?

In the sense that excess stimulus resulted in inflation, requiring the fed to raise rates, reducing the money supply (or at least lowering the rate of increase in the money supply), so that less goes into the stock market..this is absolutely what happened IMHO

That is really the elephant in the room, isn't it? Volker took interest rates to 4% above inflation to finally get it to end. That is a huge spread from where we are now. Interesting times.

Great point for the case that inflation will not get back down to a ~2% target without a recession... how long I think depends on how fast interest rates go up.

 

[MC Rider]

Markets and economies go up, and they go down.
Things have been going up for a long time, I guess we are due for some down time. After that I have no idea.

No desire to be on TV, but they got nothing more than I do other than blather and speculation.

It's a crazy world.

 

[steelyman]

Markets and economies go up, and they go down.
Things have been going up for a long time, I guess we are due for some down time. After that I have no idea.

No desire to be on TV, but they got nothing more than I do other than blather and speculation.

It's a crazy world.

Yes it is. There are a lot of people who say they’re “buy and hold”. Times like this are when that’s tested.

 

[MC Rider]

There's a time to hold em, a time to fold em....