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So, About that Recession…

Markets in the Morning

Briton Ryle by Briton Ryle
December 20, 2022
in Analysis
0
So, About that Recession…

Protection or defensive stock in economy crisis or market crash, business resilient to survive difficulty or insurance concept, businessman holding umbrella to cover and protect from downturn arrow.

A week ago, on Tuesday, December 13, investors celebrated a Consumer Price Index (CPI) number that showed inflation might be cooling faster than expected. Maybe the Fed would ease up on the rate hikes, and maybe Americans would be spared from recession and spiking unemployment…

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Optimistic traders sent the S&P 500 soaring – up over 100 points in the first 30 minutes of trading to challenge recent highs at 4,100. And that was it. That was the bull's crescendo of confidence. 

The S&P 500 has now dropped 7.5% in 5 days, back to levels from November 8. A six-week rally unwound in just five days. Risk happens fast, and sentiment can turn on a dime.

Fear of an imminent recession is now the lead headline. Morgan Stanley and Goldman Sachs were out with bearish forecasts yesterday – they both agree that recession is likely and the S&P 500 is on its way to 3,800, another 20% lower from current levels.  

Well, isn’t that convenient…

I’ve written before about windows of opportunity in the stock market before. Windows of opportunity open when investor sentiment is moving in a specific direction. All it takes is a little nudging from influential investment banks, maybe a well-timed forecast printed in the Wall Street Journal to set off a stampede. 

These days, it’s pretty easy to quantify investor sentiment. There are firms that do nothing but track keyword searches on Google and keyword mentions on Twitter, and that info then informs trading, promotional and editorial strategies. If you see the words “electric vehicles” popping up frequently in Google searches, well, maybe an investment article about electric vehicles will get some play and maybe even go viral…

A cynic might call this a form of market manipulation. A realist might prefer to say it’s just good marketing. My point is that if the world's Morgan Stanley and Goldman Sachs see a window of opportunity to push stock prices around, they will do it. 

So, about that recession. The short answer is that nobody knows whether the U.S. economy will contract next year. The inverted yield curve for bonds (which means short-term bonds have higher yields than long-term bonds) says the recession is coming. The jobs market says the Fed will have to work much harder to push the unemployment rate higher and tip the economy into recession. 

I don’t have a strong opinion either way. But I do know that the recession story will remain out there. And even if it gets pushed to the back burner, it can get put back on the front burner pretty quickly. 

In the meantime, investors are still on the lookout for the elusive Santa Claus rally. Now that the S&P 500 is putting together a little rally keep an eye out for some bullish headlines. It shouldn’t be too hard for Wall Street to open a window of opportunity for a little upside move here. 

That’s your “Morning in the Markets” for today, take care, and I’ll talk to you tomorrow.

brits-sig

Briton Ryle
The Profit Sector

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Tags: Consumer Price Index (CPI)Goldman SachsMorgan StanleyS&P 500Santa Claus RallyThe Fed
Briton Ryle

Briton Ryle

I’ve been trading, investing, and sharing my insights with individual investors since 1998.  Back then, the internet was not a very useful research tool. Armed with a library card and a huge budget for the printer, I’d scroll the microfiche for Wall Street Journal and Financial Times articles. I bought technical books on wireless technology and fiber optic networks. I traveled to Chicago to learn the secrets of stock options trading directly from the experts on the floor of the CBOE.  I’ve attended and spoken at more investor conferences than I can remember…. All because I’ve always taken my responsibility to my readers and subscribers very seriously. I refuse to parrot popular opinion, offer up half-baked ideas or publish incomplete or half-hearted research.  There is no shortcut to deep research... becoming as close to an expert on topics, trends, and technology as possible. And the rewards are life-changing. The very first stock I ever recommended was South Korea’s SK Telecom. My readers enjoyed a 150% profit in a matter of months.  And after 25 years, I’ve helped tens of thousands of readers change their financial fortunes.  A few months ago, I donated all my suits to Goodwill, pulled my name off the list of speakers for the big investor conferences, and left the big city for Southern Georgia. The plan was to retire to the banks of a tidal creek that splits off from the St. Mary’s river as it enters the Atlantic between Cumberland and Amelia islands... and trade stocks when I felt like it. But, I guess retirement wasn’t for me after all. I’m back, and this is gonna be something special. 

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Protected by copyright laws of the United States and international treaties. This website may only be used pursuant to the Terms and Conditions and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of The Profit Sector, LLC. 415 1st Ave N #19868, Seattle, WA 98109

© 2022 The Profit Sector, LLC. All rights reserved. Our website provides stock market research, commentary, and analysis. Information is provided “as is” and solely for information purposes, not for trading purposes or advice.

Nothing on this website should be considered personalized financial advice. Any investments recommended herein should be made only after consulting with your personal investment advisor and only after performing your own research and due diligence, including reviewing the prospectus or financial statements of the issuer of any security. The Profit Sector, its managers, its employees, affiliates and assigns (collectively "The Company") do not make any guarantee or warranty about the advice provided on this website or what is otherwise advertised above. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. The Company is not affiliated with, nor does it receive compensation from, any specific security. To the maximum extent permitted by law, the Company disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations provided herein prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

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