A few months back I wrote the post below on where I think the market is heading. It's aged pretty well and seeing all the FOMO posts recently made me want to post a quick update.
https://www.reddit.com/r/stocks/comments/uzurrf/whats_happening_in_the_market/
TLDR from previous post: Market rallies on the back of strong earnings until ~3Q of this year. At this time, people will start to talk about FOMO since they missed the bottom. At the same time, consumer demand begins to contract and the death spiral begins. This will result in a strong recession in 2023 and we will see the bottom only when the fed steps in.
Again, I think the future of the market all comes down to inflation. Will supply recover to meet the continued strong demand, or will that only happen through demand destruction with further rate increases? If supply does recover without demand destruction, we could achieve the soft landing, which is what the market is pricing in now imo.
The problem I see with the soft landing, even if achieved, is the lack of slack in the current economy. We have the lowest unemployment in decades, and I don't see that going any lower. This means that both demand will stall at current levels (only grow in line with wage growth) and productivity will stall outside of efficiency through innovation. IMO, this means that if we achieve the soft landing, the future of the economy still isn't great. We will only see growth through inflation, and there isn't much room at all to grow real GDP. The FED will have to play a tight rope of managing money supply so inflation doesn't go rampant, without destroying demand to the point of the recessionary death spiral.
The FED may be able to walk that tight rope for a while but at some point it's going to give. Also, once the consumer starts to slow spending, the death spiral will begin on its own, regardless of inflation. Never underestimate the American consumer to spend money they don't have on things they don't need — but I do think we will see weakening in consumer spending later this year as the cost of inflation catches up to consumer balance sheets. This could start the death spiral by Q4 this year and bring on a real recession. If they continue to spend, and inflation eases, then this death spiral could be pushed off for who knows how long, but ultimately I think will occur in the next year or two due to reasons mentioned previously.
Current market positions: I have no idea what will happen but there are enough risks in the market that could trigger a recession that are leading me to be cautious. Currently holding a low beta portfolio and will transition short once there are some signs of consumer spending weakening or inflation remaining hot.
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