At the conclusion of their July 26 ’23, meeting, the Federal Open Market Committee (FOMC) voted to raise the target range of the federal funds rate by 25 basis points to 5.25% to 5.50%. The S&P 500 traded around 4,000 points at the time – some 16% off its ~4800 January high. Markets had reason to be worried… Investors had not seen the Fed this aggressive at any time in the past 40 years… and conditions seemed ripe for a recession. What’s more, most widely cited indicators suggested this was a likely outcome. However, it didn’t happen? Why not? Are popular recession indicators no longer relevant?
Recession
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Don’t Fight the Fed…
“Don’t fight the Fed” is a popular Wall St. adage for investors. The phrase was coined by well known investor Marty Zweig in 1970. At the time, Zweig explained the Federal Reserve policy enjoys a strong correlation in determining the stock market’s direction. Fast forward ~50 years and his theory has proven mostly correct.
Why I’m Not Betting on a Soft Landing
With the Fed seemingly on pause and bond yields sharply off their highs – markets are optimistic. Equities have surged the past few weeks – up around 17.6% year-to-date. The S&P 500 added 10% in just 3 weeks! The narrative (as far as I can tell) is we’re headed for “soft landing”. But can we be so sure? Past experience suggests a “hard landing” is the more likely outcome. And absent other evidence, when the Fed hikes this much (and especially this fast) – we should expect one.