Newsletter: May 2023
Wednesday, July 12th
Brief Market Update: Please take a few minutes to read some brief comments on the markets and the current economic recession indicators.
MARKET CONTINUES TO TRADE IN A TIGHT RANGE: The market continues to move in a very tight range as it digests earnings, inflation results, the risk of recession, and the upcoming debt ceiling deadline. We remain defensive in our allocations as our indicators forecast a greater chance of downside as the overall direction of the economy comes into more focus.
CPI MEETS EXPECTATIONS: The latest CPI number of 4.9% matched expectations and shows that inflation continues to drop. The Fed agreed to increase rates by .25% and signaled that they believe they are at or near the end of the rate increase cycle. The market is predicting that economic weakness will force the Fed to start lowering rates as early as August, while the Fed believes rate decreases will not occur until sometime in 2024.
DEBT CEILING COULD BE A MAJOR CATALYST: Secretary Yellen is now estimating that Treasury reserves will be depleted by June, which would result in a government default if an increase in the debt ceiling has not been agreed upon. Credit markets are getting concerned that a default might actually occur as credit default swaps are more expensive than they were in 2008. All eyes will be on whether or not the two sides can come to an agreement within the next few weeks.
LATEST ECONOMIC INDICATORS: As of April 30, there are now 10 indicators signaling recession and two signaling caution. Job growth is finally starting to show some weakness, which is one of the main indicators the Fed has been focused on to control inflation. The possibility of a recession remains high.
Below are the latest economic recession indicators as of April 30.
(The chart below shows the indicators in past recessions as acomparison.)
RECESSION RISK INDICATORS