Investment Commentary – May 25, 2022
Year to Date Market Indices as of May 25, 2022

• Dow 31,880 (-12.23%)
• S&P 3,922 (-17.47%)
• NASDAQ 11,708 (-28.31%)
• Gold $1,850 (1.10%)
• OIL $111.13 (47.29%)
• Barclay Bond Aggregate (-9.18%)
• Fed Funds Rate 1.00
• Current Annual Inflation Rate 8.5%

Are we in or headed towards a recession?
JP Morgan Analyst Jordan Jackson
“The signal is clear: the economy is still firing on all cylinders and we are not in a recession.”

The US economy is showing signs that the post pandemic surge is beginning to moderate, but we do not think a recession is imminent. Nonetheless, stocks are near correction territory, consumer sentiment has soured to levels last seen in 2011, geopolitical tensions are elevated, and prices are higher everywhere; all of which challenge this view. To address this, investors should first understand what constitutes a recession and, importantly, how current conditions and trends shape the investment outlook.

One common definition of a recession is two consecutive quarters of negative GDP growth, however, the National Bureau of Economic Research (NBER)—the official scorekeepers for recessions and expansions— define a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months…these include real personal income less transfers, nonfarm payroll employment, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, employment as measured by the household survey, and industrial production”.

Utilizing this more expansive definition, incoming data shows:

Monthly nonfarm payroll growth has averaged over 550K in the past 6 months, signaling very strong demand for labor and a robust job market
Real personal income excluding transfers fell 0.3% m/m in in March but is 1.9% higher relative to a year ago and 1.2% higher relative to the pre-pandemic peak
Real consumer spending expanded 0.2% m/m in March as consumers continue to shift from buying goods to paying for services
Industrial production rose 1.1% in April, aided by a 0.8% increase in manufacturing output
Given this, the signal is clear: the economy is still firing on all cylinders and we are not in a recession. Moreover, looking at an even broader heat map of economic variables (red = contracting, yellow = neutral, green = improving) across corporate profits, labor and activity, the evidence suggests the economy continues to expand healthily, albeit at a slower pace after roaring out of the pandemic. While the Federal Reserve is keen on bringing down inflation, a more cautious approach could allow for a soft-landing next year, suggesting risk assets may be oversold at this stage.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments. (Market Indices) (Around the Web & Upcoming Events) (YTD Performance Chart)