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.

HAS THE ECONOMY reached peak inflation? That might be the biggest question in financial markets right now. Economists at several Wall Street firms, including Goldman Sachs and Bank of America, say the highest pace of consumer price increases may now be in the rearview mirror.
Inflation is typically measured as a percent change from a year ago. From here, prices for goods and services may still go up, but at a slower pace. That’s the hope.

THE FEDERAL RESERVE has a daunting responsibility. Among its jobs is “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” This is commonly referred to as its dual mandate of maximum employment and price stability.
Yet those two aims are often at odds. That’s because of the inverse relationship between unemployment and inflation, embodied by the Phillips Curve. Attempts to maximize employment—or minimize unemployment—often stoke the flames of inflation.

FOR AS LONG AS I’VE been writing about investing—37 years now—grumpy old men have been declaring that the stock market’s party will soon end with a world-class hangover.
Is it time to stock up on Tylenol?
I, of course, don’t have the slightest clue. But when the S&P 500 rises 3% on Wednesday and then plunges 3.6% on Thursday, you sure get the sense that investors are a tad uncertain about the future. That brings me to two questions I’ve been pondering.

DO YOU SEE THINGS clearly when it comes to money? Here’s a test to find out. Which of the following scenarios would you prefer?

A 5% raise, but the inflation rate is 10%.
A 3% salary cut, but the inflation rate is 0%.

If you chose the 5% pay raise, you’ve fallen victim to a “money illusion.” This term describes our tendency to view money in nominal terms instead of inflation-adjusted “real” terms.
In the first scenario,

EVERY MARKET DECLINE is different, but all of them can feel unnerving, even for the most steadfast of investors. Spooked by 2022’s financial market turmoil? There’s good news: Stock and bond values today look much more compelling than at the turn of the year.
Thanks to 2022’s 14% drop, the S&P 500 now trades below its five-year average price-to-earnings (P/E) ratio, based on expected profits. On top of that, corporate earnings rose impressively in this year’s first quarter.

IN A NOTE TO CLIENTS last week, Deutsche Bank analysts wrote that they expect a “major recession.” What should you make of ominous predictions like this?

First, don’t panic. Yes, Deutsche Bank is a big institution. But it’s worth noting that last week two equally prominent institutions also weighed in—with a different point of view. Goldman Sachs argued that a recession is “not inevitable.” UBS wrote that, “We do not expect a recession.” They can’t all be right.

EXPERIENCED INVESTORS know that the stock market and the economy sometimes diverge. Early 2020 offered a stark example: Even as the economy was still contracting rapidly, stocks started bouncing back.
But right now, many areas of the stock market are doing about what you’d expect. After all the efforts by the Federal Reserve and Congress to prop up the economy over the past two years, rising inflation is front and center, along with rising interest rates. 

INVESTORS ENDURED a lot in the first quarter, including rising interest rates, high inflation, fears about a recession and news of war. But it’s important not to get caught up in the scary headlines. Consider COVID-19. Not so long ago, it dominated the news, but now it’s hardly discussed because the situation is much improved.
No doubt today’s fears will also abate. Indeed, despite 2022’s dire news, stocks staged an impressive recovery toward the end of the first quarter.