The Fed met this week and, as expected, raised interest rates by 0.75%.
I believe it was already baked into the cake, as they say. The Fed was late to the party and should have started raising rates last year, but has now pledged to fight inflation as best it can. This is the fourth hike so far in 2022 and the first time in years that they have raised rates by 0.75% in a row.
I’m rooting for them to massage tariffs so they don’t shock the economy.
It’s a big week for earnings reports with 1/3 of all S&P 500 companies and so far earnings are looking good.
The second quarter GDP was released on Thursday and we recorded a further contraction of -0.9%. This is on top of the -1.6% first quarter reading. Normally, this would be considered the start of a recession under the old definition, “a period of two successive quarters where commercial and industrial activity is reduced”. But the National Bureau of Economic Research (NBER) recently changed the definition to now mean “a significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.”
The S&P is down from its -14% high, to put it in perspective, 2 and a half years ago at the start of Covid-19 it was down -34% and 15 years ago at coming out of the financial crisis, it was down -50%. Over the past 15 years, investors have experienced two bear markets, both of which recouped their losses and reached new all-time highs. In hindsight, investors wondered, “what buying opportunity, why was I afraid to invest money?
I believe that over time, investors will look at this current correction and ask the same question.
The average annual return over the past 15 years for the S&P 500 was +9%, the Nasdaq +14% and bonds +3%. Not bad considering how many times investors always think the next correction, bear market and/or recession will be different, but it’s never really different, that’s how it is. The world isn’t over yet and I’m pretty sure it won’t be over now.
There’s a saying, “A recession is when your neighbor loses his job, and a depression is when you lose yours.” Time will tell, or I should say the NBER will tell us and I suspect it will be late this year, but we don’t necessarily need to go into a recession, although the consensus on Wall Street is that we do. will do.
The good news is that the S&P 500 has rebounded from its low of almost +8%, there are 6 million unemployed and 11 million jobs available, the unemployment rate of 3.6% is near the lows historical records, corporate earnings are good and most importantly, consumers are spending money. If there is a recession, it may be short-lived and shallow.
I believe there is a lot of bad news in this market and all we need is more good news before the markets start recouping their losses. Markets will continue to reach new all-time highs, and if so, investors will want to be invested and not miss recouping their losses. So far this week, things are looking up.
Steven Bouchey, CFP® is founder and CEO of Bouchey Financial Group, Ltd. with offices in Saratoga Springs, historic downtown Troy, Boston and Palm Beach. Email your questions about investments and financial planning to planningpaysoff@bouchey.com. The information in this column should not be considered the receipt of personalized financial advice and please consult your financial advisor.
