Stock and bond market returns in 2022 have left investors frustrated and dour about the future. But as Warren Buffet is known to have said, “the stock market is a device for transferring money from the impatient to the patient.” Bear markets are normal expected events that can be as equally rewarding as they can be devastating. Although past performance is no guarantee of future returns, every bear market in history has only served as a great entry point in retrospect.
It seems important to note that the recession in 2020 was not so much a recession but a lockdown. Now, with two consecutive quarters of declining real GDP, many believe we are back in recession. However, we believe that as of now we are not in a recession and that the economy is much stronger than many believe. Current data shows Initial Jobless Claims, Continuing Jobless Claims, and the ASA Staffing Index are all healthier than they were before the 2020 pandemic. Nonfarm Payrolls Increased 263,000 in September, another sign no recession has started or is about to start.
Wages also continue to grow, as average hourly earnings are up 5.0% versus a year ago. Although we estimate that the consumer price index is up 8.1% from a year ago, we also like to follow total wages paid, which is based on average hourly pay and total hours worked. Total wages are up 8.6% from a year ago, meaning wages are beating inflation (mainly because workers are working more hours). However, the point remains that household income and balance sheets remain strong and are able to weather the storm of inflation.
Although we do expect a recession, we do not believe it is here and now. We believe rate hikes, which have already impacted the housing market, will likely cause a recession by the second half of next year, with some variability of that timeline. There is certainly more economic pain to come, in certain areas, like the labor market, but that pain is almost completely in front of us, not behind.
Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss, including the loss of principal. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.