This is one of the better performances of the US market in recent times, and will raise hopes of at least a more sustained respite to the overall major down-trend of this year.
At the same time the economic data flow deteriorated further however. My expectation is that this stock market rally will not last long.
The US economy contracted 1.5% in the first quarter. Already half way into recession. Some respite may be seen in the second quarter data. But it is the second half of this year that I have been touting as the real risk zone for the US economy.
Isn’t it interesting how Wall Street has kept ’talking’ strong economy, while it was already in serious decline yet again.
We also saw significant and worrying declines in the Kansas City Manufacturing Index, further property bubble bursting evidence in the sixth monthly decline in Pending Home Sales, and last, but not least, the rolling-over into decline in Corporate Profits?
Still want to buy stocks? Really? And the inflation and rate hikes, food and energy shortage crises facing the world, have yet to reach full impact in the real world economy.
My Triple Recession Risk forecast, Europe, USA, China, is no science fiction affair. The outlook for the rest of 2022 is highly problematic.
My favourite market at the moment is the energy sector. Expect Oil and Gas prices to continue to climb. The combination of actual loss of supply and the increasing refusal to accept supply from Russia will see these commodities move considerably higher.
Gold too, is building nicely for a resumption of risk-on buying in the near future.
The US dollar is only immediately under a little pressure as most commentators suggest the Fed minutes are more cautious, but I just cannot see it that way.
The Fed Chairman has made it clear he is willing to cause economic pain through aggressive rate hikes to defeat inflation. This is an error, but one they are likely to be as stubborn about as they were that inflation would be transitory. It is one grave historic error after another at the Fed at the moment.
The market is still under-estimating the economic catastrophe of extreme inflation and aggressive rate hikes mortgage stress occurring simultaneously. Corporate Profits have begun to roll over and are likely to deteriorate further through the rest of this year.
Clifford Bennett
ACY Securities Chief Economist. The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.
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