A very casual and non analytical post…
It seems like a lot of investors have clung on to a chart going around right now that shows sharply rising Oil prices as a preceding indicator to US Economic Recessions. While obviously this is the way it has played out in the past – below are a few points that in my opinion immediately debunk any possibility of a recessionary period, OR a continuation of market sell off. I’m gonna keep it
Short and sweet.
Where are we now? GDP, which is the broadest measure of economic activity, had its largest growth rate since 1984 in 2021. On top of economic growth – right now we sit at below 5% unemployment which marks the 7-8th time in the last 80 years it has gotten below 5. Next, US savings accounts. With economic stimulus following the pandemic, cold feet from roaring all time high markets causing cash to remain on the side for most, and various student loan relief programs – US consumers have more cash on the sidelines than ever right now.
All in all – people think that because Oil is skyrocketing, a recession in imminent based on historical data. The bottom line is (1) there are so many other factors involved when considering a potential recession, and if you look, most of which are very bullish cases for the US Economic outlook. (2) We’re talking about a monetary environment just coming out of the most unprecedented and unique circumstance in history so to compare previous recessionary causes to now is counter-intuitive. Lastly – and one I did not hit on previously in this post, stocks are….guess what… CHEAP. Fundamentally the S&P average PE is 23, this has almost halved since 2020 when it was 38. The largest uncertainty here is how Oil prices are going to reflect on income statements and balance sheets for the 2022 Q2,3 and 4 Earnings. From a Technical Charting View – just 33% of Stocks In the S&P500 are above their own 200 day moving average.
Just a couple personal opinions and quantitative points I wanted to make for a bull case.
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