The second half of 2022 for the markets begins now.
The following is a summary of 15 Wall Street Strategists published (CNBC) year-end estimates for the S&P 500 index. These come from firms such as Merrill Lynch, CitiBank, Credit Suisse, Goldman Sachs, JP Morgan, UBS and Wells Fargo…to name a few. The summary estimate is that the S&P finishes this year about +20% higher (to 4,627) than where it is presently (3,825). This on the back of suffering the worst first-half of a year for the S&P since 1970. Also know that when a “strategist” publishes such prognostications, they are not done on the back of a napkin by a candlelight (there are teams of people, not just 15 people, who arrive at these projections).
- In the second half of 1970 the S&P finished up +27%.
A recession is defined as 2 consecutive quarters of negative gross domestic product (growth). The GDP second quarter figure will publish on 7/28 at 8:30am; and most strategists and economics are forecasting that we will have negative growth and meet the definition of a recession. The extremely unusual condition that we’ve never experienced before is that the US Unemployment Rate has not been rising. In every other recession, people are laid off. Job loss has historically been a very visible condition; it’s simply not the case today. I’d suggest that this environment will go down in history as a “jobful” recession vs a “jobless” recession. And I’d also conclude that this result will land us in a shallow recession (short- lived).
- The FED is forecasting that US Growth for the second half of 2022 will erase the negative quarters and we’ll print full-year GDP coming in at +1.7% this year and it will also grow in 2023 by the same amount. (aka…the FED…not me…is actually talking about the end of the recession)
Prices have been falling. Inflation is the primary focus of the FED in its crusade to extinguish inflation. The FED rate hikes, and organic commodity cycles are resulting in these lower prices. Part of prices falling comes as a result of wage inflation declining (people still working but earning less). In my last Market Moment, I outlined falling commodity prices (this is good for the financial markets). First half of 2022 Labor cost data is now out from (Indeed & FundStrat) that shows declining wages in food services, hospitality, arts/entertainment, media/communications, scientific R&D, software development, info design, management, marketing, project management, cleaning/sanitation and human resources. It’s also showing flatlining for banking/finance, insurance, childcare, education, beauty/wellness, sports, accounting, admin assistance, legal, IT helpdesk and social services. The wage declines and lack of wage increases (on the national average) are all signs of deflation and a lack of inflation (all good for the financial markets). What wages did go up? No surprise…during the pandemic lots of people got pets. Veterinary service wages are still rising every month since start of this year.
In summary….the strategist (team) forecasts from the first paragraph are entirely possible.
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