Recession or not recession… that’s the question

Every investor appreciates that recessions and bear markets go hand in hand. But the definition of recession often seems more difficult to define. So are we in recession? And if not, does it mean that disaster is averted or is the pain train still rolling toward investors? This is an important debate as it helps us understand what lies ahead for the stock market (SPY). We will tackle this important topic in this week’s commentary. read below.


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In previous comments I have greatly simplified the definition of recession to account for the common belief that 2 quarters of GDP contraction causes a recession. If it were that easy… then the case closed as Q1 and Q2 were both negative.

Yet as with most things with investing…it’s never really that easy. And not everyone adheres to this definition.

Or perhaps we can use this old economist joke that tries to define recession as well:

What is the difference between recession and depression?

A recession is when your neighbor loses a job… A depression is when you lose your job.

Yep, that joke might explain why most economists aren’t on the standup comedy circuit 😉

At the end of the day, the official arbiter of defining a recession is the National Bureau of Economic Research which typically weighs in on the months after the fact. Meaning they haven’t named it recession yet… and probably won’t when you appreciate the following definition FAQ section of their site,

“NBER’s traditional definition of a recession is that it is a significant decline in economic activity that extends across the economy and lasts for more than a few months. The Committee is of the view that each of the three criteria – depth, spread, and duration—needs to be met to some extent individually, extreme conditions revealed by one criterion may partially offset weaker signals from another. For example, in the case of the February 2020 peak in economic activity, we concluded that the decline in activity was so great and so widely spread throughout the economy that the recession should be classified as a recession, even if it proved to be quite brief. The Committee later determined that in April 2020 The trough occurred two months after the peak.”

As much as they tried to make it accessible to the common man, it still leaves something to be desired. The main thing they need to watch out for is pain. And the main measure of pain is job losses which is a key indicator that remains positive as we saw in today’s surprisingly strong government employment report.

On the other hand, I stand behind what I said in myself Reitmeister Total Return Commentary Earlier this week in the section below:

employment still strong: This is everyone’s favorite point. However, most people are not economists… because if they were, they would know that employment is a lagging indicator. Often still feeling good because things are going straight down the toilet.

That’s where we stand now. But the longer inflation persists… the more damage is being done… the greater the likelihood of job losses that come next and from:

Lower income > lower expenses > lower corporate profits > lower share prices.

Note that the weekly jobless claims is the most telling indicator of where the monthly job gains and unemployment rate will be in the future and it is getting worse week by week as you will see in the chart below.

So I believe it is the next shoe to put the sword in this fake bull rally going back to the bears.

Job Report 8 6 22

If job gains were so strong today, it would seem to negate the basis of the recession. If true…So why did stocks drop on Friday?

While we may not be in a recession at present, unfortunately the Fed will feel more excited to aggressively raise rates which increases the potential for economic damage down the road.

Meaning the potential for a future recession is still huge, especially when you appreciate this cornucopia of snarky comments made by Fed members and gathered by SeekingAlpha.com:

St. Louis’ James Bullard: “I think inflation has warmed up during the second quarter more than I expected. Now that that’s done, I think we have to go a little bit higher than we were before.”

Mary Daly of San Francisco: ,[The Fed is] Almost didn’t do it anywhere. We have made a good start and I am really pleased with where we have reached this point, [but] People are still grappling with high prices. My modal outlook, or the outlook that I think is most likely, is actually we raise interest rates and then we keep them there for some time, whatever level we feel is appropriate.”

Charles Evans of Chicago: “If we don’t see improvement long ago, we may have to rethink a little bit more along the way. We want to see if the real side effects are going to come back down the line … or if we have a lot more ahead of us.” “

Cleveland’s Loretta Meester: “We have more work to do because we haven’t seen that turning point in inflation. It’s been a constant, many months of evidence that inflation is peaking for the first time – we haven’t even seen that yet – and it’s going to go down.” Used to be.”

The point is, we’re not technically in a recession. But there’s certainly still a strong chance that it could be on the way in the coming months. This is especially true with the Fed dead set on crushing inflation… which yes would depress the economy, including job losses.

And yes, dear friend, the Fed’s track record on causing recession outweighs the odds of making a soft landing. That’s what’s really hard behind the thesis that a new bull market is at hand.

Could the recent stock price action lead to further increases?

Yes. This is because stock prices change from fear to greed. And at each extreme prices go too far. It is very common for prices to overshoot before reverting to a more rational view.

However, as I look to the end of the year and into 2023, I still believe we haven’t seen this bear market low. Just remember that the COVID bear market lasting only a few weeks is highly heterogeneous. It is more common to have 12-18 months of effort with see-through price action before the final capitulation bottom is found.

Very little about the June 2022 lows seems to me. However, I am open to the possibility that this time is different and a new bull market has begun. Crazy things have happened. But again, the odds are against that outcome, with more pain on the way.

What to do next?

Right now there are 5 positions in my hand-picked portfolio that will not only protect you from a bear market, but also provide substantial profits in the form of stock heads.

This strategy fits perfectly with the mission of my Reitmeister Total Return service. To provide positive returns…Even in the face of a roaring bear market.

Yes, it is easy to make money when the bull market is in full swing. Anyone can do this.

Unfortunately most of the investors do not know how to make profit due to the downturn in the market.

So let me show you the way with 5 trades that are perfectly suited for today’s bear market conditions.

And then down the road we will take our profits on these positions and start bottom fishing for the best stocks because the bull market gives it the right returns.

Let’s find out what my 40 years of investing experience can do for you.

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Wishing you a world of investment success!
Reity
Steve Reitmeister…but everyone calls me Riti (pronounced “righty”)
CEO, StockNews.com
Editor, Retmeister Total Return And power value


Shares of SPY closed down $-0.70 (-0.17%) on Friday at $413.47. Year-on-year, the SPY has declined by 12.30%, while the benchmark S&P 500 index has gained% during the same period.


About the author: Steve Reitmeister

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Steve is known as “Riti” to Stocknews viewers. He is not only the CEO of the firm but also shares his 40 years of investment experience Reitmeister Total Return Portfolio, Learn more about Reeti’s background, along with links to her recent articles and stock picks.

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