"One Thing This Week" - Volatility, but No Recession
After a tough January, what can we anticipate moving forward?
Hi folks, Ron Dickinson with one thing this week. We’re not in the month by month prediction business. In fact, volatility could continue to leave us uncertain. For some time as we wait for a more clear picture from the Fed, but long term, the picture looks positive.
Despite the many challenges we’re facing in the markets from inflation, to federal rate hikes, a growing economy will provide the foundation for long term market returns. Gross Domestic Product is expanding at a robust pace. In our annual seminar recently, we projected a real possibility that stocks could drop around 15%. But we also indicated that we don’t believe a crash or recession is on the near term horizon.
We indicated that our economy is just too strong despite short term stressors, as evidenced by last Friday’s robust job report. GDP grew at 6.9% in 2021, which that was the fastest since the year 2000. Folks from the financial crisis we experienced in 2008. At that time, we were only growing at 2%. And we have real concerns about deflation, which is a lot worse than looking at inflation.
Every boom bust cycle is different. The route from the 2008 financial crisis was excessive debt, from consumers to businesses to financial engineering, it’s really really hard for economy to recover. After a crash if individuals and businesses are busy paying down debt. This puts them in a position where they’re unable to expand their spending and investing, which is essential.
The last recession we experienced in May of 2020 was more of a self induced shutdown in response to COVID. But then we recovered just as fast shortly thereafter. Now, whether you agree that this was right or wrong, in many ways, it was like turning off a light switch and then turning it back on, as opposed to having the light bulb burned out altogether. So we admit that not all industries, and not all individuals have recovered fully. So there might be a ways to go yet.
But what matters is not that the economy is perfect, but that the overall growth of the economy will support corporate earnings growth, and thus that will drive stock prices higher in the long run. And our economy right now is just too strong. Thanks, folks.