I know I may be late on this but now that the Christmas shopping season is fully underway (It started right after July 4th, didn’t it?) I think we, as investors, may need to proceed with caution.
The Christmas season, regardless of how long it actually is, is like retailers’ Spring Break. Everyone is supposed to flock to the malls around the country and buy, buy, buy. We all know the actuality is more like this: Get inundated with emails from companies you never heard of offering 10-20% discount just by giving them your email address, which they already have because they sent you that email in the first place. Then we shop, online. Amazon is the usual first stop. We order and order and order. Cover all the bases and wait for the packages to arrive.
It has been like that for the last 5 or 6 years at least. Why go to a mall, fight parking, fight rude shoppers, watch thugs empty a Gucci or Ferragamo store and realize that you forgot to buy something for Cousin It? Shop in your pajamas, spend enough so you don’t pay for shipping and wait.
That is the Christmas shopping season in a nutshell.
This year, it will be more of the same (actually, probably less of the same what with inflation) and Amazon will be happy.
Unless of course, people spend less overall. They may have some money and room on their credit cards but if you look at the way people have been spending this year, you wonder how much room is left on those credit cards?
One thing I think we all need to reconsider is this: The beloved business press has consistently said that people were spending those savings from the pandemic and I say that is a big load of nonsense. In July of 2021, yes, people were using the money they didn’t spend on things they wanted to do, travel, eat out and so forth.
I’m sorry, that pandemic money is long gone. Please stop saying it’s coming to an end and things will be slowing down. How much money did Americans save during the pandemic? $100,000?, $250,000? Stop! If people saved money, it was a lot less. People still had bills to pay. They had student loans to pay (oops wait, no they didn’t). They had rent and so on.
People were spending (and still are spending) present day income. The economy has been pretty strong for the last year and a half. Jobs were plentiful and wages were rising. That is where the spending is coming from.
I know it’s a dumb point but it just erks me to no end when things are misrepresented by the media.
The economy is (was?) solid and people feel (felt) comfortable spending and using some credit to enjoy the life they have created for themselves post-pandemic. That is what happens after a sour period in the economy, people spend. They spend also because they have the belief that their jobs are solid.
That belief has sustained 18 economic cycles in the past 60 years were the housing market increased in value. People have confidence, they spend on high ticket items. Houses, cars, Netflix subscriptions.
When the job market shows signs of weakening they stop spending.
That’s where I think we are heading.
Does that mean we are heading towards this long anticipated recession? I think the possibility of a mild recession in the first and second quarter of next year is very real.
Typically, when rates accelerate, credit markets slow down and lending (which truly is the engine that runs this country) because more expensive. Almost always, this will cause the economy to slow down or possibly contract. That is a typical response to rising rates. It’s simple economics.
However, for the last 17 months the job market has maintained a surprising strength and with that strength came increased consumer spending. Increased consumer spending never allows a recession to happen. Never. When that spending slows down, other factors become more powerful and recessions are possible.
We are at that point.
Some say it’s an inflection point, or tipping point. Whatever you want to call it, we are there.
I still remain bullish for the rest of the year but it may be a last gasp before a tough first quarter next year.
Several present factors keep me bullish. Retracing a horrible August and September for one. It was not nescessary and was oversold early, so a solid bounce was inevitable. Earnings for the 3rd quarter were better than expected and that gives investors hope so they march back into stocks. Is that sustainable? Normally, I would say no but we are coming out of terrible 2022 and typically a year like that results in much stronger following year. History does repeat itself, especially in the stock market. Lastly, with stocks typically trading based on expected growth in the following 6-9 month range, the bet here is that if we see a recession in the first quarter of 2024 we will see a sustained rally again in the second or third quarter of next year.
As with any prediction, it’s instinct, it’s data and it’s a prayer. So many things can happen and mess up a well thought out investment position or idea that it’s a gamble. The odds may not be totally stacked against you like in Vegas but it is still a gamble.
Lastly, I will say this; The Fed has had an outsized impact on equity markets for a very long time and I can see that impact being reduced each time they meet and give some laborious explanation of why they did or didn’t do something. The non-act is important because when someone does nothing does it mean anything? Like the tree falling in the forest and no one is around, does it make a sound? The Fed letting the economy and the market work out the rest of the fight against inflation, to me, is the right move. Let’s hope they keep at it.
Sure was enjoyable and definitely loaded with...... Thank You!