Monday Market Update – March 21

Forefront’s Monday Market Update

Is there going to be a recession?

I wish I knew the answer to this question with 100% certainty, but I don’t. Do I believe there is a higher chance today, than say two months ago? The answer is yes. Let me take you through my thinking.

Inflation is high, we all know that, but it had been high for a while now. Consumers are just catching up to it now, because it’s being blasted at us from every news channel on TV. Inflation is likely to get worse, especially with a war in Eastern Europe.

We tend to look at the events of today, and think about how they impact our lives today. The current war in Eastern Europe certainly impacts us today, but what about next year? Ukraine and Russia are producers of a large number of agricultural commodities, and this war will almost certainly lead to some level of food shortages in the future.

Two steps forward, and one step back with our supply chain woes. A Covid outbreak in China that has them shutting down entire cities is only going to exacerbate our supply chain issues.

There is another side to this coin though.

Pent up demand is bubbling at the surface, and hasn’t even erupted yet. The Delta CEO told Bloomberg earlier this month that the airline has just had its busiest two days in history in terms of sales. Travel spending is through the roof, and it has only just begun.

Disney is estimating that when they look at the month of March, one week of this month will end up being the busiest week ever for their theme parks. Disney isn’t cheap, but inflation is not holding back spending.

Each quarter, the Federal Reserve puts out a report going over household wealth. Last year we saw the largest increase in household net worth ever. Households have never been wealthier, and have spent much of the past 2 years saving and paying down debt because we couldn’t go or do anything.

Always Preparing for a Recession

During times of volatility, it is natural to be asked the same question over and over. “What are you doing to prepare for the coming recession?”

Peter Lynch, of Fidelity Magellan Fund Fame, once said “far more money has been lost by investors preparing for a correction or trying to anticipate corrections than has been lost in corrections themselves. The exact same can be said for recessions.

So how DO we prepare for one?

Room for Error 

My father was an entrepreneur his entire life. He owned laundromats, pharmacies, restaurants, and countless other projects and businesses. As an immigrant, the joy he took in providing jobs and opportunities for other people filled him with a sense of pride, which trickled down throughout the whole family. One thing he always made sure of was to have enough cash in the bank to make payroll for his employees for one full year, even if there was $0 in sales.

Failing to prepare, is preparing to fail

The way you prepare for a recession is the same way you prepare your financial life or pretty much anything. It doesn’t involve much buying or selling either, but rather a focus on the overall plan.

First, like my father, having a healthy cash balance in the bank is your margin of safety. It is your redundancy plan, and your room for error. The most valuable thing that cash does is leave the rest of your money alone to compound and grow, in good times, and in bad.

Second, your plan should be designed to withstand a wide variety of market outcomes, sadly, one of which is a time of economic contraction. As much as no one ever wants to see that, it will inevitably happen, numerous times.

Finally, be insightful and be deliberate about who you truly are. Knowing what type of risk you can stomach is the difference between a panic sale at the bottom, and an anxious but levelheaded decision to not panic.

So What?

So how does this impact all of you?

  • Pent up demand could help continue economic expansion
  • We aren’t preparing for THE recession, but we are always preparing for A recession

Stock market calendar this week:

8:00 AM Atlanta Fed President Raphael Bostic speaks
8:30 AM Chicago Fed national activity index
12 noon Fed Chair Jerome Powell speaks at NABE conference
10:35 AM New York Fed President John Williams speaks at BIS
2:00 PM San Francisco Fed President Mary Daly speaks on the economy
5:00 PM Cleveland Fed President Loretta Mester speaks
8:00 AM Fed Chair Jerome Powell speaks on digital challenges
10:00 AM New home sales (SAAR)
10:00 AM Cleveland Fed President Loretta Mester speaks to reporters
11:45 AM San Francisco Fed President Mary Daly speaks on the economy
8:30 AM Initial jobless claims
8:30 AM Continuing jobless claims
8:30 AM Durable goods orders
8:30 AM Core capital goods orders
8:30 AM Current account deficit
8:30 AM Minneapolis Fed President Neel Kashkari speaks on the economy
9:10 AM Fed Gov. Christopher Waller speaks on housing
9:45 AM Markit manufacturing PMI (flash)
9:45 AM Markit services PMI (flash)
11:00 AM Atlanta Fed President Raphael Bostic speaks
10:00 AM UMich consumer sentiment index (final)
10:00 AM 5-year inflation expectations (final)
10:00 AM Pending home sales index
10:00 AM New York Fed President John Williams speaks
11:00 AM San Francisco Fed President Mary Daly speaks
11:30 AM Richmond Fed President Tom Barkin speaks on the economy
12 noon Fed Gov. Christopher Waller speaks on digital currencies

Most anticipated earnings for this week:

About Amit: I am a first generation American, the son of a working-class Indian family, and I lived through my parents’ struggle to find their place in this country, to put down roots that would sustain them as well as their children in a new land. As they encouraged me to excel in school and fostered my hobbies and interests, I was keenly aware of the dynamic between them. I understood that there was a difference between where they came from individually and where we were now. They worked hard in their individual capacities, but they weren’t always on the same page about financial issues – and that can make or break a family’s future. I didn’t know it at the time, but this laid the groundwork for my passion towards financial services and helping families succeed.