WHEN WILL THE SELLOFF END? | CROUCH CONNECTION | JUNE 2022 "ADV"
WHEN WILL THE SELLOFF END?
As you can imagine, we have been asked this question many times over the past few weeks. We do our best to read and listen to as many different viewpoints as we can, but after 30 years of focusing on financial markets, I have learned to be careful who I listen to.
BAD NEWS SELLS!
Bad news is much easier to sell, and the media are in the business to sell advertising, so you can be sure they will lean toward reporting the negative stories rather than the optimistic viewpoint. Even respected prognosticators like Morgan Stanley Chairman Jamie Dimon, who roiled the markets last week by predicting an economic “hurricane”, could have an agenda that conflicts with your retirement plans. Keep in mind that the bank’s trading department makes huge profits for the bank from volatility in the markets, so always listen skeptically.
I’ve said this before, but the market strategists I respect continue to have a cautiously positive outlook for the market for the year. Kay and I attended the RJFS National Conference two weeks ago and had the opportunity to hear presentations from some of the brightest minds in the business. Among them Larry Adam, Raymond James Chief Investment Officer, Brad Pineault, Capital Markets Strategist at Fidelity Institutional Asset Management, and Phil Orlando, Chief Equity Market Strategist at Federated Hermes.
· Larry Adam expressed optimism at the conference and reiterated in his June 3 weekly letter that “Despite the uncertainty, we believe the Federal Reserve can engineer a soft landing…” citing the health of the consumer. He continued, “the consumer has not stopped spending…consumer balance sheets have rarely been in better shape. Robust job gains, strong wage growth and a significant amount of accumulated savings continue to provide plenty of firepower to support consumption.”
· Phil Orlando highlighted the Presidential election cycle which could provide a much-needed boost. Market corrections are not unusual in the second year of a Presidential term (2022 for Biden). The average drop during a mid-term election year has been 19% (almost exactly what we have just experienced) followed by a 31% rally over the next 12 months, calling the current correction a buying opportunity.
· Brad Pineault delivered one of the most impressive presentations I have ever heard. He cited the same statistics about the mid-term election year cycle opportunity saying, “the deeper the fall the bigger the bounce”. He said the consumer balance sheet has never been stronger. With $25 Trillion in savings and $7 Trillion in home equity (which has doubled over the last two years), he believes a recession in 2022 is very unlikely, and that inflation will likely be down to about 4% by year-end, taking pressure off the Fed to slow the economy.
Eugenio Aleman, the newly named Raymond James Chief Economist echoed the positive view in his weekly letter (also June 3) saying, “We remain in the camp that the Federal reserve will be able to engineer a soft landing and will spare the economy from a recession.”
BUT WHAT ABOUT INFLATION
Again according to Phil Orlando, 61 high-profile companies have already announced layoffs or hiring freezes since February which should take pressure off of rising wages. And according to Linda Duessel, also at Federated, prices for wheat (and corn), gold, and other commodities are well off their highs, with copper, platinum and lumber down year-over-year.
Granted, to anyone who has been to the grocery or filled their car up with gasoline lately talking about falling inflation might seem preposterous, but respected J. P. Morgan global strategist Marko Kolanovic has since repeated the view that inflation has likely peaked on a year-over-year basis which, you would hope, could lead to lower food and energy prices soon.
If that happens, we believe that you would then see the beginning of a strong recovery in the market, possibly the 31% rebound that Phil Orlando suggested could be possible.
Repeating the recommendation in our last letter, patience has always paid off at times like this. We believe your patience with this market will pay off again. Call us if we can help with your concerns.
Dave Crouch Kim Blackburn Kay O’Connell
Registered Principal Branch Operations Manager Financial Advisor
“In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else- and bitcoin does all three. In the first place, it’s stupid because it’s still likely to go to zero. It’s evil because it undermines the Federal Reserve System…and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban bitcoin in China.”-
Warren Buffett’s partner, Charlie Munger
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions