There are plenty of people in the U.S. who have difficult, thankless, downright painful jobs. But perhaps topping this list here toward the end of calendar Q2 2022 is Fed Chair Jay Powell’s job.
Take yesterday, for instance: an overheating economy was universally seen as calling for stricter tightening on interest rates, so Powell’s Fed increased the hike from 50 to 75 basis points. Today, the markets are trading as if this was a huge mistake, and that Powell is crash-landing the economy into recession.
Market indices sank further today: the Dow dropped -739 points — though off the -928 at the session low — or -2.42%, and this was the best-performing major index of the day. The S&P 500 dropped -3.25% on the day, the Nasdaq -4.08% and the small-cap Russell 2000 was down -4.70%. These indices are down down -5.5% to -9.5% — this week alone!
Such are the joys of recognizing a recessionary environment in real time. Even worse, if we’re looking at negative GDP growth for Q2 (recall the -1.4% posted in Q1) while at the same time aggressively raising interest rates? Why, that’s a recipe for “stagflation,” and nobody wants to see that.
It’s not just in the U.S., either. Just this morning, we saw a 50 bps hike from the Swiss National Bank, followed by the Bank of England — which, upon estimating its 9% inflation in April will blossom to 11% by October, raised rates another 25 bps for the fifth time since December. It’s Q2 GDP is expected to be slightly in the red, -0.3%, as well.
If we’re looking for any silver lining here, it would have to be in how strong companies with solid earnings projections are seeing their valuations cut to the bone along with everything else. With the Dow approaching bear-market conditions (currently -18% and change), chasing the S&P’s -23.5% and the Nasdaq’s -32.75% and below 30K for the first time in a year and a half, it should be increasingly obvious that when a turnaround happens — and a turnaround always happens, eventually — that this very moment in the markets is going to be seen as a terrific entry point, looking back.
So scour those valuations. Check them versus the Zacks rank. Look for industries more highly rated going into the summer and fall months. There are still deals to be had, no doubt, despite the market intimidation right now. Because once analysts sense a clear path toward future profitability, we expect indices to shoot higher. Maybe not by tomorrow or next week, but they’ll get there.
Questions or comments about this article and/or its author? Click here>>
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More Market Pain as Investors Reckon Recession
There are plenty of people in the U.S. who have difficult, thankless, downright painful jobs. But perhaps topping this list here toward the end of calendar Q2 2022 is Fed Chair Jay Powell’s job.
Take yesterday, for instance: an overheating economy was universally seen as calling for stricter tightening on interest rates, so Powell’s Fed increased the hike from 50 to 75 basis points. Today, the markets are trading as if this was a huge mistake, and that Powell is crash-landing the economy into recession.
Market indices sank further today: the Dow dropped -739 points — though off the -928 at the session low — or -2.42%, and this was the best-performing major index of the day. The S&P 500 dropped -3.25% on the day, the Nasdaq -4.08% and the small-cap Russell 2000 was down -4.70%. These indices are down down -5.5% to -9.5% — this week alone!
Such are the joys of recognizing a recessionary environment in real time. Even worse, if we’re looking at negative GDP growth for Q2 (recall the -1.4% posted in Q1) while at the same time aggressively raising interest rates? Why, that’s a recipe for “stagflation,” and nobody wants to see that.
It’s not just in the U.S., either. Just this morning, we saw a 50 bps hike from the Swiss National Bank, followed by the Bank of England — which, upon estimating its 9% inflation in April will blossom to 11% by October, raised rates another 25 bps for the fifth time since December. It’s Q2 GDP is expected to be slightly in the red, -0.3%, as well.
If we’re looking for any silver lining here, it would have to be in how strong companies with solid earnings projections are seeing their valuations cut to the bone along with everything else. With the Dow approaching bear-market conditions (currently -18% and change), chasing the S&P’s -23.5% and the Nasdaq’s -32.75% and below 30K for the first time in a year and a half, it should be increasingly obvious that when a turnaround happens — and a turnaround always happens, eventually — that this very moment in the markets is going to be seen as a terrific entry point, looking back.
So scour those valuations. Check them versus the Zacks rank. Look for industries more highly rated going into the summer and fall months. There are still deals to be had, no doubt, despite the market intimidation right now. Because once analysts sense a clear path toward future profitability, we expect indices to shoot higher. Maybe not by tomorrow or next week, but they’ll get there.
Questions or comments about this article and/or its author? Click here>>