Today I want to provide an updated version of the all-important opening section where I review the 5 key reasons to still be bearish in 2023. That starts by appreciating that the recessionary storm clouds are…
darkening over the first half of 2023. And if a recession is in the air, it creates this very negative vicious cycle:
Recession > Job Loss > Lower Income > Lower Spending > Lower Corporate Profits > Lower Share Prices > Rinse & Repeat
The “Rinse & Repeat” part explains why this can be such a vicious cycle. Because the most oft used cure for lower corporate profits is to lower expenses. And that typically means deeper job loss which revs up the cycle again leading to a weaker and weaker economy (and lower and lower stock prices).
Let’s also remember that the Fed only has tools that influence the economy over time, but are far from perfect instruments. Like the fact that they have been raising rates aggressively since March and only recently have we seen any noticeable reduction to high inflation. Yet still too high which is why the job is far from over.
The same thing will be true about the delayed effects when the Fed wants to revive the economy down the road. It is far from an “On” switch that immediately kicks the economy back into high gear.
Think of a recession the same as…
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