So far, so good
Looking back it is clear that several important turning points were reached in June: inflation peaked, interest rates peaked, and the stock market (probably) hit bottom for this cycle.
None of this was expected at the time. In fact, investors were convinced that a recession was inevitable, inflation would force the Federal Reserve to push interest rates even higher, and the bear market in stocks would continue.
So far, all of these fears have reversed. Below is the 3 month chart of crude oil prices, which have settled below $100 after reaching $122. Gasoline at the pump has followed suit and therefore inflation has moderated.
Crude Oil Peaks at $122 per Barrel on June 8, 2022
Within a week of oil’s peak, interest rates peaked as well. Here’s the 3 month chart of the 10 year treasury bond, which has fallen below 3% for the last four weeks. Mortgage rates, while still high, have stopped rising.
10 Year Treasury Bond Yield Peaks at 3.48% on June 14, 2022
Then there’s the biggest surprise of all—the stock market has been ripping upward, recovering about half of the losses suffered since the first of the year. Again, so far.
S&P 500 Bottoms out at 3,666 on June 16, 2022
The most well advertised recession in recent memory has yet to be seen in the numbers that matter most, unemployment and consumer spending. Over 500,000 new jobs in July and no slow-down in spending–not what happens in a recession.
Meanwhile the companies in our portfolios continued to report strong profit growth. Anyone who attempted market timing* in 2022 has been caught flat-footed, probably more than once.
In the short-term there’s still plenty to worry about. The traditional nasty months of September and October must still be navigated, and the Federal Reserve will continue to raise rates. But the three charts above suggest some important trend changes. If we avoid a recession in 2022, as we expect, the worst could be over for stock investors.
Daniel A. Ogden
** Jargon Alert – Market timing is the strategy of making buying or selling decisions of financial assets by attempting to predict future market price movements.