One of the great sayings around the investing table is: Don’t fight the Fed. Since the Fed is in the midst of a tightening cycle, it would seem that not fighting the uptrend in rates makes good sense and investing to take that into account the wisest course of action.
If we also take into account that many pundits are now forecasting that we are heading directly into a recession, it makes very good sense to pay close attention to as much data as possible. The Fed’s job is to control inflation and maintain full employment. If they get good stock market results while they are at it they are heroes. Right now they want to slow the economy down to the point that demand in some of the key economic areas breaks the back of inflation. Whoa there Nellie, don’t run the horses and wagon off the side of the mountain doing it.
Atlanta FED’s GDPNow has dropped to 0.9% for the 2nd Quarter of 2022: CNBC
This reading, which was tracking at close to 4% May 1st has had a rough road since then as many of the component indicators have hit brick walls. If the Q2 reading also goes negative, it would mean two consecutive quarters of negative growth and the textbook definition of recession.
That brings us to the Fed put. When all of this unpleasantness started many were speculating that the Fed surely wouldn’t let the S&P 500 drop below 5,000. Now, the Fed put consensus seems to be 3,640, so there is still room to fall from here. If there is a put they ain’t talking.
We got more earnings revisions to the downside, particularly for 2023, which is why we got such volatility in the markets.
Diversification and cash equivalents are very good bets while this plays out.