Ladies and gentlemen, the weekend! In this space each week, Greg and I share some of our favorite articles, notes, and graphics from the past week along with our commentary. Please feel free to provide feedback and forward along to others if you enjoy. We appreciate you taking the time to read. 

If you are a client, we truly appreciate your business. If you are not a client, please click below to learn more about our firm and contact us.

No Recession, Yet

“We are not ‘recession deniers,’ we just don’t think one has started yet. The distortions of economic activity from lockdowns, massive deficit spending, and money printing are immense. It’s hard to imagine the US can unwind these policies and not have a recession. 

Monetary policy, for example, is going to have to get tight and stay tight to bring down inflation and keep it there, so we don’t get into a stop-and-go cycle of inflation problems like we did back in the 1970s and early 1980s. And a monetary policy that gets tight enough and stays tight enough for long enough to achieve that goal is very likely to cause a recession. We’re just not there yet.

Initial jobless claims totaled only 193,000 in the week ending September 24, extremely low by historical standards, while continuing jobless claims are just 1.347 million. Industrial production is up at a 4.0% annual rate in the first eight months of the year. Gross Domestic Income (GDI) was positive in the first six months of 2022. These are just not recessionary numbers.

Meanwhile, we are projecting a 3.0% annualized growth rate for real GDP in the third quarter. Hurricane Ian should have a temporary negative effect, but it hit so late in Q3 that its impact on GDP data should be minor.”

In my opinion, Brian Wesbury from First Trust is one of the more pragmatic economists working today. His conclusion was that we are not in a recession, but there are areas that are suffering (goods) and starting to suffer (housing). The current path of the Federal Reserve policy may likely get us there. But, the labor market and corresponding services economy have not felt any of the downturn, yet. 

There's more upside than downside for long-term investors

“The first two years of recoveries are huge. In year one of a market recovery, the S&P 500 has returned a whopping 30% on average. In year two, the S&P 500 adds another 37% on average.

The good days happen near bad days. ‘Successfully timing the stock market is near impossible, partly because the best trading days tend to cluster around the worst ones. And missing just a few of those rally days has a surprisingly outsized impact. Looking at market data going back much further, to 1928, being out of the stock market for just the best 30 trading days would have resulted in half the return over that period.’

Stocks can rally as unemployment climbs… There are many instances where stocks will rally as the unemployment rate climbs for months. This is notable and timely as we prepare for the U.S. labor market to cool. It’s also a reminder that stocks are a discounting mechanism, pricing in what’s expected to happen and not what’s currently happening.

None of the above stats will tell you much about where the market will be in the next few days, weeks, or months. We could be at the bottom. Or we could go much lower.

But for long-term investors, time in the market matters more than timing the market.

‘It pays to remain invested and balanced precisely when it is most difficult to do so,’ [Vanguard’s Greg] Davis noted.”

The negative headlines and recession talk can be unnerving for investors. How does it translate to the timing of market returns? We’ve been consistently addressing the dislocation between the economy and the stock market this year. It was brought to light again on Friday as stock markets reacted negatively to a good jobs report. Unfortunately, it may take some bad news and a Fed pivot to initiate better stock returns.

5 Questions to Ask a Financial Advisor

“The financial-advice industry features a bewildering array of titles, designations, and compensation schemes. Some advisors are fiduciaries, some aren't.

And even though advisors must obtain licenses if they're selling securities, and pass tests and log work experience if they want to earn certain credentials (such as the certified financial planner designation), there aren't any minimum standards in place for calling yourself a financial advisor. You could work your whole life selling cars and no one would stop you from hanging out a shingle as a financial advisor tomorrow; you'd be competing head-to-head with advisors with years of experience and prospective clients wouldn't necessarily know the difference.

Here are the key questions to ask of prospective advisors.

1.     Are you primarily a financial planner or an investment advisor?

2.     Are you a fiduciary?

3.     How do you charge for your services?

4.     What designations/credentials do you have?

5.     What's your backup plan?”

This was great, practical advice for people interviewing potential financial advisors. I feel confident in the answers that Greg and I could provide for our firm and how they stack up to the overall marketplace. We serve as a fiduciary providing comprehensive wealth advisory services through a fee-only firm with credentialed advisors and a business continuity & succession plan. 

Jim Cramer from CNBC’s Mad Money and other programming has a penchant for making some ill-timed calls on stocks. There’s a fund company that filed with the SEC to try to capitalize on Jim’s misfortunes. The Inverse Cramer ETF (SJIM) would monitor Cramer’s recommendations to purchase stocks that he dislikes and short stocks that he likes.

So, what happens if he recommends his own inverse ETF? A financial vicious cycle?

Thanks for reading. Have a great weekend!