Recession Looming


Each of us has our own way of defining what a recession is. Some of us have lost jobs and some of us have taken major hits within our portfolio. Others have had very little happen to them. Economists define a recession as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP into successive quarters.”

In a report recently, Bank of America’s chief investment strategist warned that recession shock is coming. Other analysts are suggesting the same, driven by inflation. Consumer prices surged 8.5% in March, the fastest pace since December 1981. These price hikes are hitting everything from used cars, men’s clothing and baby food to salad dressing. “It’s out of control,” the strategist wrote in a CNN article titled “Inflation causes recessions.”

The Federal Reserve has a primary function of regulating the money supply in our country. It is a private bank that loans money to our government to issue as our currency. The Fed functions to try and keep our prices stable, and interest rates at appropriate levels. Leadership has done a good job of this for several decades, and I don’t think it will be any different this time, but it is increasing rates at the fastest pace in decades, and I don’t think that’s going to stop anytime soon.

In January, you could get a mortgage for 3.5% and here we are, four short months later, and a mortgage is 5.5% today. Chairman Jerome Powell announced last week that when the Federal Reserve governors meet again in May, another 0.5% rate increase is “on the table.” In my opinion, he is telling us that a 50-basis-point increase is coming in May. As a result of this, the Dow Jones had its worst day April 22, 2022, since October 28, 2020. A rising interest rate environment is historically bad for tech stocks. The Nasdaq is coming off its worst four-week performance since December 2020, according to Nasdaq.

Most of my clients are attributing these market concerns to the crisis in Ukraine. I think inflation is the bigger threat. Vladimir Putin is a dictator, and according to President Joe Biden, is about to begin cyber attacks on the United States, and that also is a significant threat to the market. We need to take some time to thank our neighbors who work in the intelligence agencies like the NSA that protect us every day from these threats and receive little fanfare from doing so. We are unique here in Maryland that these folks live near us, our kids go to school together, and they protect us every single day. Thank you to all of you. If these folks weren’t as successful as they are, we would see much bigger impacts to our economy from these threats. As a result, inflation is our primary concern.

Elon Musk mentioned in an earnings call recently that his company is experiencing as high as 30% increases from its suppliers. We all have experienced our own share of increasing costs on goods and services, so it’s hard to determine what the actual inflation impact is. Several companies are announcing quarterly earnings and the result of these companies will ultimately indicate if a recession is looming or not. Company earnings are a big indicator of our current economic picture, so that is something I’ll be watching.

The old adage of “buy low and sell high” is something we always need to keep in mind. “The best time to make money is when there is blood in the streets” is a poignant yet accurate way to describe Wall Street. While one can never time the market or know when you’re buying low, but historically, if you can buy during a recessionary period, you earn better returns in the long run.

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The views depicted in this material are for information purposes only and are not necessarily those of Cetera Advisor Networks LLC. They should not be considered specific advice or recommendations for any individual.


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