Recessions
If It’s A Bull, How Does It Stack Up?
Although we can’t claim that the 2022 decline purged the economic and stock-market excesses for another multi-year bull, there’s nothing in the action of the S&P 500, itself, that exposes its upswing as fraudulent.
Maximum Inversion?
Factoring in both the duration and depth of the existing yield-curve inversion, it is considered more severe than all predecessors since the 1960s. Even Duke University yield-curve guru, Campbell Harvey, abandoned his January forecast that a recession would be avoided.
The Pre-Election “Put”
Years preceding presidential elections are more likely than others to feature stock-price action that is favorably disconnected from the fundamentals. Since 1926, the average S&P 500 gain in a pre-election year is +14.2%—about double the next-best year of the cycle.
Bulls, Bears, And Boxing
Bears normally walk on all fours, just like their congenitally happier counterparts. But images we see of bears attacking prey (or humans) usually show them on two feet. Maybe there’s a lesson there.
1966-67: When The Yield Curve “Failed”
Given the tendency of economists and strategists to dismiss the message of an inverted yield curve, it’s surprising there’s been no scrutiny of the “dog that didn’t bark”—the inversion of 1966. That’s the last time an inverted curve did not lead to a recession.
Is This Year’s Strong Start “Signal Or Noise?”
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This year is off to a much stronger start than suggested by the 3-4% gains in the blue-chip averages: Through January 12th, the Value Line Arithmetic Composite—an equally-weighted index of about 1,700 stocks, was up 7.0%.
Another Stab At The “Downside”
How far might the S&P 500 fall in a recessionary bear market? The 2002 and 2020 stock market lows were both produced by “recessionary” bears; based on history back to the 1920s, those two lows stand out as the priciest bear market bottoms on record—and it’s not even close.
Some Perspective For Dip Buyers
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Losses in the Russell 2000 Growth Index and the NYFANG+ Index have topped 40%, and the only true equity rockstar, spawned by a 13-year secular bull market, has watched her fund’s value drop by more than three-quarters. Yet there’s still a televised debate as to whether this decline is even a bear! Could there be a more devious creature on the face of the planet?
The EPS Recovery And "The Cycle"
In a couple of weeks, final second quarter EPS for the S&P 500 will confirm the fastest recovery ever from a recession-related earnings decline. That’s old news, and before it has even hit the tape. But we’ve had a sneak peak from the monthly, 12-month trailing EPS numbers published by MSCI for its USA Large Cap Index. Those figures showed that EPS exceeded their pre-COVID peak in May, and the latest reading (through August) is already 22% above the prior high! Simple trendline analysis suggests that EPS for U.S. Large Caps are likely higher today than they would have been in the absence of the COVID pandemic and hyper-stimulative response.
Slowdown Or Recession? No Confidence In “Confidence”
The ultimate question is whether the Fed’s recent “insurance cuts” are enough to overcome uncertainties about trade talk—and the upcoming election—to avert a recession. We updated our “Slowdown vs. Recession” study to see where we stand now. The bottom line is: It’s too early to rule out a recession.
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