Raymond Kanyo, CFA
MarketBites: Recession Confirmed
Portfolio Manager Commentary:
The U.S. economy entered a recession on Thursday, yet stocks continued to rise to a seven-week high.
Why are stocks rising in a recession? The market is a forward-looking instrument that is happy when it can look forward to something with a high level of certainty. On Thursday, the market got some certainty after Q2 GDP growth came in at -0.9% (annualized). Now that the market knows we are in a recession, it can look forward to the next bull market, as it knows that, on average recessions, have a duration of 11 months. Even as the Fed raised interest rates on Wednesday by 0.75%, the market is already pricing in interest rate cuts for next year, because... you guessed it... we are in a recession.
On the earnings front, Amazon and Apple jumped after reporting strong results. Intel dropped as the semiconductor giant missed expectations and lowered guidance.
Chart of the Day:
Savings as a percentage of disposable income (in white) keeps trending lower, as consumer debt (in blue) reaches a new high. It is safe to assume that the government "free money" programs from 2020 and 2021 are out of the financial system. The only byproduct of the government intervention that still remains is the 40-year high inflation. Will it follow consumer spending and savings?
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