MENU

Perspectives

Slowing Economy for Sure - Will It Be a Soft Landing or a Recession?

by Fortem Financial June 27, 2022

Stocks advanced sharply last week (S&P 500 +6.5%), largely reversing the decline of the prior week. The rally stemmed from a technically oversold condition and some evidence that inflation might be peaking. The best performers were consumer discretionary (+8.3%) and healthcare (+8.2%); the worst performers were energy (-1.6%) and materials (+2.7%).

WEEKLY ECONOMICS SUMMARY

There is developing evidence of a cyclical slowdown. Metals prices (eg, copper) are turning lower. PMI’s are falling. China has already taken a large hit due to local policy decisions. Europe is still dealing with the impact of the Russia/Ukraine conflict. The U.S. is feeling the impact of a Fed that has turned aggressive and is aiming for restrictive monetary policy.

In responding to our mid-month SLIM Survey, the panel indicates manufacturing new orders are weakening in June. The KC Fed manufacturing survey showed backlogs easing. The U of Michigan measure of U.S. consumer sentiment, which had already registered a stunningly low reading in early June, slipped further in the final monthly reading to 50.0.

Interest-rate sensitive sectors in the U.S. (eg, housing) are starting to turn down, though not all the data has been negative (eg, new home sales up +10.7% m/m in May).

Fed Chair Powell has noted that factors beyond the Fed’s control (eg, geopolitics, supply-chain issues) will determine whether they can bring inflation down to the 2% target with the labor market still strong. We’re using the following odds for the U.S.: 50% recession, 40% soft-ish landing, and 10% upside surprise over the next 12 months. Central banks need to focus on firmly anchoring long-run inflation expectations. Until that happens, inflation data (hot) remains more important than growth data (cold).

“The world’s central banks must raise interest rates sharply, even if it significantly hurts growth, the institution known as the central banks’ central bank warned on Sunday. If they don’t, the world risks a 1970s-style inflationary spiral, the Bank for International Settlements [BIS] said in its annual report.” (WSJ)

If U.S. recession is a coin-flip in the next year (cash savings + job openings create a cushion vs. 1H weakness), the key is for inflation to peak & come down quickly. Otherwise, the year after that could see an equal chance of a downturn (the central bank will have to keep tightening, and policy acts with a lag). Flipping two coins & needing heads on both to avoid recession at the 2 year horizon doesn’t make for great odds (0.5^2 = 0.25).

Bottom line: the U.S. economy is slowing down, to rebalance demand with restricted supply & remove inflation pressure. The revision lower in the U of Michigan measure of long-run inflation expectations was welcome news last week. But measured inflation needs to come down as well.

From here (at full employment) U.S. job growth should be slowing. Cracks are developing – initial jobless claims were 229,000 again last week. Slowing corporate profit growth also argues for a reduction in business spending generally (hiring, capex, travel, advertising, etc).

As we’ve listed previously, the downside risks are: we’ve already had a surprise negative quarter in the U.S. in 1Q of 2022 (which is rare); global supply shocks are still in play (Russia/Ukraine); we’ve lost help from U.S. productivity (more pressure on supply); demand must fall to meet (restrained) supply; corporate profits should come under further pressure.

If a central bank wants to get truly tight, the short rate has to get above the inflation rate (ie, there’s a long way to go).

We compare this again to the (narrowing) path to a “soft-ish” landing: job openings > unemployed cushion; goods could cheapen with global bottlenecks clearing (bullwhip overordering); Quantitive Tightening could balance fed rate hikes; the FOMC has wiggle room around the 2% target (eg, declare victory at 2.5%); productivity could rebound due to technology.

Source: Strategas


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

Latest News

 

Economy Week Ahead: Factories, Inflation and Consumer Spe...

The Commerce Department's report on new orders for durable goods-products designed to last at least three years-will show whether soaring prices, rising interest rates and an uncertain ec...

The Wall Street Journal

Read Story

 

The Fed: Bowman backs steep rate hikes and wants to 'get ...

Federal Reserve Gov. Michelle Bowman said she supports an aggressive series of interest-rate increases to try to tame inflation and eventually wants the central bank to stop intervening i...

MarketWatch

Read Story

 

US markets pointing toward positive start to the week

U.S. markets are pointing higher before the opening bell as leaders of the Group of Seven economic powers pledged financial, humanitarian and other support for Ukraine.

News Nation

Read Story

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Fortem Financial

Fortem Financial Author

Recent Posts

PRIVACY NOTICE REGARDING CLIENT PRIVACY

Fortem Financial Group, LLC, has adopted this policy with recognition that protecting the privacy and security of the non-public personal information we obtain about our customers is an important responsibility.

All financial companies choose how they share your non-public personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your non-public personal information. Even when you are no longer our customer, we will only share your non-public personal information as described in this notice. So, please read this notice carefully to understand what we do.

The types of non-public personal information we collect and share depend on the product or service you have with us. This information can include items such as your Social Security number and income, your account balances and transaction history, and your investment experience and account transactions.

We collect your non-public personal information in a variety of ways. For example, we obtain your non-public personal information when you open an account or give us your income information, tell us about your portfolio or deposit money, or enter into an investment advisory contract. We also collect your non-public personal information from other companies. For example, from the custodians who hold your account assets.

All financial companies need to share customer’s non-public personal information to run their everyday business. Below, we describe the reasons we can share your non-public personal information and whether you can limit this sharing.

We share your non-public personal information for our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, report to credit bureaus, to protect the confidentiality or security of your records, or as permitted by law. We may also share your non-public personal information for our own firm’s marketing purposes; so that we can offer our products and services to you.

Federal law gives you the right to limit only sharing non-public personal information about your credit worthiness for our affiliates’ everyday business purposes; sharing non-public personal information about you with our affiliates to market to you; and sharing non-public personal information with non-affiliates to market to you.

We don’t share non-public personal information about your creditworthiness with our affiliates for their everyday business purposes. We don’t share your non-public personal information with our affiliates to market to you. We don’t share your non-public personal information with non-affiliates to market to you. We also don’t share your non-public personal information for joint marketing with other financial companies. State laws and individual companies may give you additional rights to limit sharing.

We share non-public personal information with our parent company affiliate, Focus Financial Partners, Inc, for its internal and external auditing purposes. We also share your non-public personal information with a non-affiliate for the purpose of aggregating it and providing summary information based on this data to our parent company, Focus Financial Partners, Inc.

To protect your non-public personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

Our policy about obtaining and disclosing non-public personal information may change from time to time. We will provide you notice of any material change to this policy before we implement the change.

If you have questions please call us at 760-206-8500 or go to our website at www.fortemfin.com.

IMPORTANT CONSUMER DISCLOSURE

Fortem Financial Group, LLC ("Fortem Financial" or the "Firm") is a federally registered investment adviser with offices in California and Arizona. Fortem Financial and its representatives are in compliance with the current registration and notice filing requirements imposed upon federally registered investment advisers by those states in which Fortem Financial maintains clients. Fortem Financial may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This website is limited to the dissemination of general information regarding the Firm's investment advisory services offered to U.S. residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Fortem Financial' website on the Internet should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment, tax or legal advice. Furthermore, the information resulting from the use of any tools or other information on this website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from Fortem Financial. Any subsequent direct communication from Fortem Financial with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. Fortem Financial does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to this website or incorporated herein, and takes no responsibility therefore. All such information is provided for convenience purposes only and all users thereof should be guided accordingly.

All statements and opinions included on this website are subject to change as economic and market conditions dictate, and do not necessarily represent the views of Fortem Financial or any of their respective affiliates. Past performance may not be indicative of future results and there can be no assurance that any views, outlooks, projections or forward-looking statements will come to pass. Investing involves risk, including the potential loss of principal, and the profitability of any particular investment strategy or product cannot be guaranteed.

Any rating referenced herein may not be representative of any one client's experience. Further, the Firm's receipt of any rating is not indicative of the Firm's future performance. The Charles E. Merrill Circle of Excellence award is granted by Merrill Lynch for outstanding client service and satisfaction. The award is granted based on annual criteria established by Merrill Lynch for its top decile advisors. The Barron's Top 1,200 Financial Advisors rating of the top financial advisors in the United States is based on data provided by participating firms. The following factors are included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance is not an explicit component. The Palm Springs Life's "40 Under 40" Rising Young Professionals to Watch in the Coachella Valley is based upon nominations from the local business community and selected by the staff of Palm Springs Life.

For information pertaining to the registration status of Fortem Financial, please refer to the Investment Adviser Public Disclosure website, operated by the U.S. Securities and Exchange Commission, at www.adviserinfo.sec.gov., which contains the most recent versions of the Firm's Form ADV disclosure documents.

ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE REFERENCED HEREIN.