Is a recession still coming?

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A word about recessions.

Are we still going to see one this year? Let's discuss.

(Bored by talk about the economy? We've got you covered. Scroll down to our P.S. for a fascinating video about grit.)

Why did so many people think a recession was coming?

Inflation and interest rates, primarily. Historically high inflation has cast a pall over the economy since early 2021.1 In response, the Federal Reserve raised interest rates rapidly to bring inflation back down. Analysts worried those rapid interest rate hikes could trigger a "hard landing" recession.

But it looks like the dark mood is lifting.  You can see in the chart above that inflation has been on a definite downward trend since last summer.2  That trend suggests that the Fed's interest rate program has worked to tame inflation.


So, will the Fed keep raising interest rates?

Hard to say.  The Fed raised interest rates again by a quarter of a point at its July meeting, but it's possible that it won't raise rates again if inflation remains on a downward trajectory.3  In fact, some analysts think that the Fed's next move might be to lower rates in 2024.

Does that mean a recession is definitely off the table?

That's far too optimistic.

While the economy has been much, much more resilient than even seasoned analysts predicted, the accumulated effects of interest hikes may still deal a serious blow to growth.

There are signs that the economy is weakening in some areas. For example, while American consumers are still spending, they aren't buying as much stuff.4 That's hurting the manufacturing sector, which has been in a slump for a while.5 Since consumer spending is worth about 70% of economic activity in the U.S., it’s an important indicator for future economic growth.

Employment trends will also be important to watch. So far, the work of lowering inflation seems to have succeeded without damaging the job market. However, there are signs that the labor market may be weakening, so that's something to keep an eye on.6

Bottom line: Things seem to be looking up.

The dark clouds on the horizon appear to be breaking and there are reasons to be optimistic. But, it won't be smooth sailing.

(Is it ever?)

We’re keeping an eye on trends and we’ll reach out as needed. Most importantly, remember you have a financial plan with a roadmap for your retirement, ready to weather any storms, and a team at Eagle Wealth that is dedicated to your success. We're always here to support you, so don’t hesitate to call if you have questions.

Until next week,

Your Eagle Wealth Team

P.S. Every wonder why some people stick with things while others quit? Check out this fascinating TED talk by Angela Lee Duckworth, professor of psychology and author about the power of grit.

 


Cucumber, Tomato, and Avocado Salad

The classic cucumber and tomato salad just got better with the addition of avocado, a lemon dressing, and fresh cilantro.

 

 

Total Time: 15 minutes
Servings: 4 (as a side salad)
 

Ingredients

  • 1 lb Roma tomatoes
  • 1 English cucumber
  • 1/2 medium red onion, sliced
  • 2 avocados, diced
  • 2 Tbsp extra virgin olive oil or sunflower oil
  • 2 Tbsp fresh lemon juice, (from 1 medium lemon)
  • 1/4 cup 1/2 bunch cilantro, chopped
  • 1 tsp sea salt or 3/4 tsp table salt
  • 1/8 tsp black pepper

 
Instructions

  1. Place chopped tomatoes, sliced cucumber, sliced red onion, diced avocado, and chopped cilantro into a large salad bowl.
  2. Drizzle with 2 Tbsp olive oil and 2 Tbsp lemon juice. Toss gently to combine. Just before serving, toss with 1 tsp sea salt and 1/8 tsp black pepper.

Recipe Notes
*Note: if you aren't keen on cilantro, fresh basil or dill are good substitutes.­ You can also play around with balsamic vinegar instead of lemon juice.
 
Recipe courtesy of Natasha’s Kitchen:  https://natashaskitchen.com/cucumber-tomato-avocado-salad/

 

 

 

The Week on Wall Street

A Friday surge pushed stocks solidly into positive territory last week, ignited by cooling in an inflation gauge closely tracked by the Federal Reserve.

The Dow Jones Industrial Average advanced 0.66%, while the Standard & Poor’s 500 climbed 1.01%. The Nasdaq Composite index rose 2.02% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.74%.7, 8, 9

Stocks Pop

Stocks were flat for much of last week amid a batch of new earnings, a 0.25% interest rate hike, and strong economic data. After beginning with gains, stocks lost momentum following the Fed’s expected rate-hike announcement on Wednesday. A bounce on Thursday sparked by a positive mega-cap tech company earnings reversed after bond yields increased. 

Stocks recovered strongly Friday on the release of the personal consumption expenditures price index, which fell to its lowest level in two years.10

Much of the market action was related to earnings results. With 44% of S&P 500 companies reporting, 78% have exceeded Wall Street forecasts.11

Recession Deferred

Expectations of a recession were high coming into 2023. Last week may have erased this recession narrative overhang. 

Second-quarter gross domestic product (GDP) data released last week was one big reason why. Economic activity expanded by 2.4%, which was above the forecast of two percent and represented an acceleration from its first quarter GDP of 2.0%. Consumer spending was a major driver of that expansion, rising 1.6%.12

Joining the recession-deferred camp this week was Fed Chair Powell, who stated that the Fed was no longer forecasting a recession.

 

Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance

 

 

  1. https://www.stlouisfed.org/en/on-the-economy/2022/apr/2021-year-high-inflation
  2. https://www.cnbc.com/2023/07/12/inflation-rose-just-0point2percent-in-june-less-than-expected-as-consumers-get-a-break-from-price-increases.html
  3. https://www.cnbc.com/2023/07/26/live-updates-fed-decision-july-2023.html
  4. https://www.reuters.com/markets/us/us-consumer-spending-edges-up-may-inflation-still-high-2023-06-30/
  5. https://www.reuters.com/markets/us/us-manufacturing-extends-slump-june-ism-survey-2023-07-03/
  6. https://www.cnbc.com/2023/07/07/jobs-report-june-2023-.html
  7. The Wall Street Journal, July 28, 2023.
  8. The Wall Street Journal, July 28, 2023.
  9. The Wall Street Journal, July 28, 2023.
  10. CNBC, July 28, 2023.
  11. CNBC, July 27, 2023.
  12. CNBC, July 27, 2023.

 

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The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

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