As an investor, your job is to carefully assess the risks against the rewards. A large part of that equation is knowing exactly where we are in the business cycle. For example, consider the following questions: (a) do you think we’re at the beginning or middle of an economic advance (with more to go)? or (b) do you think we’re about to encounter a significant change in direction? and (c) if so, is that change for the better or for the worse? Your answer is very important. It’s far better to invest (or take more risk) at the start of the business cycle vs the end. Therefore, how will make that decision? How are you able to determine where we are? I will offer a market signal which is arguably more consistent and reliable than most indicators.
Recession
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Wall Street Cheer a “Strong Jobs” Report… Should They?
Wall St. cheered a perceived ‘strong’ monthly June jobs report. The economy added 206K jobs last month – however the unemployment rate moved to 4.1% – its highest level in 2 years. Here’s the thing: there was a lot of weakness in the labor market – with most of the jobs coming from government. In addition, April’s job gains were revised lower by 111K. And May was revised lower by almost 60K. I think there is material underlying weakness (reflected in slower Real GDP and PCE) and perhaps enough for the Fed to start cutting rates in September or November.
Why ‘Soft Landings’ Deserve Scrutiny
What impact will a ‘soft-landing’ have on current stock valuations And does there need to be a recession to experience a meaningful (e.g. 12%+) decline? My short answer is no. The gist of this post is to remind investors that you don’t need a definitive line-of-sight to a potential recession before protecting gains. I say that because recessions are lagging events – which come at the very end of the cycle. By the time they arrive – the economic damage is already done. Therefore, we need to be in front of the curve. Typically in the 9-months leading up to a recession – stocks continue to trade at or near highs – as analysts raise their outlooks. Unemployment and earnings are usually strong – as GDP keeps its head above zero. But those who are able to understand where we are in the business cycle will pay careful attention to what’s happening shortly after peak economic growth.