WHAT DO ALL BEAR markets have in common? By definition, stock prices must fall at least 20%. But often, that’s pretty much where the similarity ends.
For instance, ponder the differences between 2020’s one-month, 34% plunge in the S&P 500 and this year’s grinding nine-month descent, which saw the S&P 500 yesterday close 25% below its early January high.
The 2020 slump had folks fretting about the economic shutdown and possible deflation, while this year’s big worry is surging inflation amid a 53-year low in unemployment.
I LEARNED IN COLLEGE economics classes that there’s a time value to money. A dollar today is worth more than the promise of a dollar a year from now. Result? If you’re going to promise me a future dollar, you have to make it worth my while by paying me some interest.
This was certainly true in 1980, when I graduated with an economics and management major. Admittedly, inflation was even higher back then.
WHILE THE S&P 500’s price-earnings (P/E) ratio has little predictive power if you look at returns over the next 12 months, it’s more important if you stretch out your time horizon to five years and beyond. What you pay has a significant impact on your likely long-run return—and that should be comforting for today’s buyers.
Recently, WisdomTree Global Chief Investment Officer Jeremy Schwartz shared a compelling graphic showing P/E ratios for dozens of U.S.
MIDTERM ELECTIONS are less than two months away. The political landscape is uncertain and always fraught with heated opinions—but I won’t dive into that end of the pool. Instead, consider how the stock market might perform in the coming months and into 2023.
While technical analysis—using past price data to infer future prices—is controversial and dismissed by many fundamental investors, it’s hard to ignore a persistent bullish pattern that could soon repeat. Stock market history tells us that,
FEDERAL RESERVE CHAIR Jerome Powell, speaking last Friday at the Jackson Hole Economic Symposium, said that bringing down inflation will mean “some pain” for households. But what sort of pain are we talking about?
Powell and the rest of the Fed members are hoping to create “tight conditions.” That isn’t some opaque description of the economy and financial markets. Instead, the term has four specific components that help dictate Fed policy.
The U.S.
RECESSION FEARS are fading. Second-quarter corporate profits have been better than expected. Some recent economic data show key barometers in growth mode, even as the latest GDP report confirmed a second consecutive quarter of economic contraction. Indeed, this past Friday’s hot employment report cooled the debate over whether we’re in a recession.
The pandemic upended so many facets of life and business, and we’re still feeling the effects today, as evidenced by odd swings in what are often stable economic numbers.
THE FEDERAL RESERVE has been the biggest buyer of Treasury and mortgage-backed bonds for the past decade. In that time, it expanded its balance sheet from about $800 million to more than $8 trillion.
As long as inflation remained low, its bond purchases helped produce a slowly growing economy by keeping interest rates and unemployment low. Now that inflation is at its highest level in 40 years, the Federal Reserve is starting to raise interest rates in response.
INFLATION IS TAKING its toll on Americans’ view of the economy. But things could be a lot worse. Exhibit A: Europe.
Last week, the U.K. reported its inflation rate had surged to a four-decade high of 9.4%. June’s reading was a significant bump up from May’s 9.1%. Even higher inflation is expected as year-end approaches, with the Bank of England seeing annual inflation hitting 11%, according to The Wall Street Journal.
In fact,
THE RESEARCH TEAM at Bank of America put out a pair of seemingly contradictory investment notes last week. On the bullish side, the folks there pointed to extremely cheap valuations in the small-cap space. But a few days later, the economics department rocked Wall Street with a bearish forecast calling for five consecutive quarters of negative real U.S. GDP growth.
I chuckled at the sequencing: It’s often said the stock market leads the economy by about six months,
IT’S SUMMERTIME in South Florida, where I live. The temperatures are high, the humidity too, and the sandy beaches too hot to walk barefoot on. Then there’s the Atlantic hurricane season. It’s in full swing and runs from June 1 to Nov. 30.
What’s any of that got to do with managing money? Think spaghetti map predictions.
We’ve all seen those spaghetti maps on television and online. They typically appear 10 to 14 days before there’s a possibility of a hurricane or cyclone coming our way.
THE FINANCIAL NEWS these days is all about inflation—what caused it, what it means for American families and how we should address it. Little wonder: The annual U.S. inflation rate hit a 40-year high of 8.6% in May.
How can we track a slow-moving force like inflation to figure out when it’s starting to cool? I’d watch four areas: energy costs, housing demand, employment rates and retail spending. When I examine the latest trends from these four bellwethers,
THE LATEST ESTIMATE for first-quarter GDP growth was issued by the Bureau of Economic Analysis (BEA) on Wednesday morning. While not market-moving news, it revealed that the economy shrank at an annualized rate of 1.6%, a tad worse than market expectations. The most surprising part of the revised estimate was the downward adjustment in personal consumption. Along with recent credit- and debit-card spending data, as well as comments from a few consumer goods companies,
STOCK INVESTORS are hanging tough. Bond investors? Not so much.
Citing flow of funds data from EPFR, Bank of America Global Research says investors collectively purchased $195 billion of stocks this year through June 22. The implication: People aren’t panicking. That’s great news, and it supports the narrative that today’s stock investors are less bullied by market volatility.
It’s a different story in the bond market, where we’ve seen so-called capitulation. Bank of America notes that $193 billion of bonds have been sold this year by investors.
BEAR MARKET territory. On Friday, that phrase was all over the “financial pornography” channel, as commentator Carl Richards labels it. During trading, the S&P 500 finally dropped 20% from its early January all-time closing high. In truth, that number alone doesn’t mean much. Consider that stocks in both 2011 and late 2018 briefly encroached on 20% before bouncing back in a big way.
The media was ready last week to go with all the flashing banners and alerts.
IF YOU’VE TRIED TO buy a car or a home recently—or have even just been to the grocery store—I’m sure you’re aware how much prices have jumped over the past year. John Taylor certainly has an opinion on the topic.
Taylor is an economics professor at Stanford University. While not a household name, he’s a leader in economic circles. Before Jerome Powell was appointed Federal Reserve chair in 2018, Taylor was a candidate for that spot.
