September 12, 2022
Forefront’s Monday Market Update
2022 Expectations vs. Reality
As the back-to-school season is getting underway and we are all adjusting to fall sports schedules and evenings full of homework, investors are nearly 3/4 of the way through a rough year. 2022 has not shaped up to the year that many expected
Markets were able to pull out a gain last week after three consecutive weeks of market drops, as this week’s highly anticipated inflation data is solely in focus. That data will help clarify future interest rate hikes and broader economic health as we head into the home stretch of 2022.
Spending
At the beginning of the year, many analysts saw a robust 2022 coming out of the pandemic and giving the economy a second wind of growth. We saw clear imbalances in the economy created by the pandemic but expected the supply chain bottleneck to loosen and a drawdown of excess savings that would support consumer spending.
We saw that Q1 and Q2 of 2022 had a negative GDP reading, which to all investors who don’t have a political bias, is a good indication of a recession. Negative GDP, rising food and energy costs, and falling consumer sentiment have led to a volatile and oversold market for 2022. These were emotional responses, as the data didn’t look that bad.
Consumer spending, or the fancy economic term of personal consumption expenditures, which makes up 70% of GDP, has been healthy this year despite the rising costs and interest rates. The negative GDP readings in Q1 and Q2 had more to do with sizable swings in inventory and net trade value, not because of a slowdown in spending, which is the usual driver of a recession.
We have even seen supply chain disruptions ease as of late, with data from supplier delivery time and order shipment times drastically improving. There is some swing back to the service side of our economy with a tick-up in spending in categories like dining, travel, and leisure, but still, a way to go with high prices tamping down demand.
Labor
The labor market has been the lone bright spot in our economy this year and one of the primary reasons it is difficult to call what we are going through an actual recession. A recession needs to be caused by a reduction in spending, usually set up through layoffs and an extreme softening of the labor market. That hasn’t happened and doesn’t look like it will happen as most businesses are still struggling to find quality employees.
There will be some slowdown in the labor market, with some cracks appearing. Those cracks will show up as reduced or suspended hiring but will stop short of mass layoffs.
Inflation
The inflation expectations to start 2022 are laughable when you look back at it. The expectation was that inflation would remain above 3% through the middle of this year and moderate and come down below that mark by the end of the year.
Last month’s CPI number was 8+%, so maybe we overshot that 3% mark by just a bit.
We are FINALLY seeing inflation start to regulate a bit, and it won’t be long before our month-over-month inflation numbers begin to have a negative sign in front of them. Year over year will take a little bit longer, but we are seeing a reduction in inflation, albeit slowly.
Help is coming from falling commodity prices, supply chain bottlenecks easing, and slower price gains for things like used cars and homes.
So What?
So how does this impact all of you?
- Expectations and reality are often times very different. It is always good to look back on the year and reflect.
Stock market calendar this week:
| MONDAY, SEPT. 12 | |
| 11:00 AM | NY Fed 3-year inflation expectations |
| TUESDAY, SEPT. 13 | |
| 6:00 AM | NFIB small-business index |
| 8:30 AM | Consumer price index |
| 8:30 AM | Core CPI |
| 8:30 AM | CPI (year-on-year) |
| 8:30 AM | Core CPI (year-on-year) |
| 2:00 PM | Federal budget |
| WEDNESDAY, SEPT. 14 | |
| 8:30 AM | Producer price index final demand |
| THURSDAY, SEPT. 15 | |
| 8:30 AM | Initial jobless claims |
| 8:30 AM | Continuing jobless claims |
| 8:30 AM | Retail sales |
| 8:30 AM | Retail sales excluding vehicles |
| 8:30 AM | Philadelphia Fed manufacturing index |
| 8:30 AM | Empire State manufacturing index |
| 8:30 AM | Import price index |
| 9:15 AM | Industrial production index |
| 9:15 AM | Capacity utilization |
| 10:00 AM | Business inventories |
| FRIDAY, SEPT. 16 | |
| 10:00 AM | UMich consumer sentiment index |
| 10:00 AM | UMich 5-year consumer inflation expectations |
