To say that stocks tumbled in June is an understatement, by one of the broadest measures of the stock market, things fell by almost 10% in June alone.
The first half of the year in stocks was the worst since 1970, for the bond market the first half of 2022 was the worst on record. Only cash and commodities held positive returns year to date, within broad asset classes. Market returns from the first six months of 2022 have just about priced in a recession as a certainty in 2022 or 2023. Our opinion of things differs a bit.
Looking over all of the data and indicators we follow we are still looking at growth, albeit slowing growth.
Just this morning, 7/6/2022 we got the ISM services report which came in at 55.3, a strong number. We also got the JOLTS report. The quits rate from the JOLTS report, typically people quitting one job for another, remains elevated at 2.8% annual rate. The quits rate is rarely elevated in times of recession.
At this point everyone knows that the US Federal Reserve is fighting inflation tooth and nail with interest rate increases. We continue to believe that market returns have been driven by very tight liquidity conditions brought on by the FED and that has driven down the most speculative parts of the market. Just take a look at Bitcoin in the table above as an example.
The Fed slowing demand so that the economy can catch up and prices cool a bit can happen without a recession. Nevertheless, the markets have a recession priced in.
So, if the recession comes in the next 10-12 months will it be a matter of sell the rumors and buy the news? Because most assets have a recession priced in, it makes this a good time to put long term money to work.