(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
The place to start this discussion is with the following article published last week on CNBC:
Forecasters see growing chance of a recession as Fed hikes rates this year to fight inflation.
This is a monthly survey of economists to measure the average outlook for the US economy. And here are the key excerpts from that article:
“The probability of a recession in the U.S. was raised to 33% in the next 12 months, up 10 percentage points from the Feb. 1 survey... Respondents debated whether the recent surge in commodity prices would prompt the Fed to hike rates faster because it adds to inflation or raise rates less because they reduce growth… The average GDP forecast for this year slipped by 0.8 percentage point but remains at a slightly above-trend 2.8%. The GDP forecast for 2023 dropped by about a half a point from the last survey to 2.4%.”
Your first reaction is probably a sigh of relief that only 1/3rd of economists has this pessimistic outlook. Now the scarier notion is to find out that historically only 40-50% of economists were predicting a recession before it actually occurred. Indeed, it is a very inexact science and why the current level of concern is actually quite high.
Now let’s contemplate this very thoughtful piece from one of my favorite market commentators, John Mauldin: Brace for (Recession) Impact
For the past year Mauldin has urged folks to consider the possibility of 1970’s style stagflation. That is an ugly economic environment where a stagnant economy emerges at the same time as high inflation. And yes at that time it was about surging energy prices (folks my age or older will certainly remember the gas shortages and long lines at the pump across the US).
John originally contemplated the possibility of this happening. Now he fears that the Russia/Ukraine crisis, with related energy shock, was the last piece of the stagflation puzzle.
Is Mauldin right???
That indeed is the $64,000 question (more like $85 trillion question given the size of the world economy).
Now let’s go back to the previous statement…economics is an inexact science. So for as much as I appreciate Mauldin’s contemplation of stagflation…I don’t believe it is a forgone conclusion.
That sentiment is echoed in the previous clips from the economists survey showing the +2.8% GDP growth expectation for this year and +2.4% for next year.
So Reity…why even bring it up?
Because it COULD come true and we would be wise to stay vigilant looking for signs of that potential. That is why we are not back to 100% long the stock market even as we broke above the 200 day moving average today.
I think we are well positioned right now with the following allocations:
77.5% long stocks (currently spread across 10 stocks and 1 ETF)
8.0% Short of Bond Market with ETF (still the best game in town!!!)
7.5% Cash
7.0% Gold with ETF
If the threats of stagflation, world crisis and/or recession grows…then we will get more and more defensive. That playbook includes selling more and more of our long stocks…maybe all of them. Then flipping things around with inverse ETFs to profit from a declining market.
If these threats prove to be nothing more than false boogeymen…and the economy and bull market stay on track, then we will become more aggressively long the stock market.
Just remember that the most bullish happening right now is we still have historically low interest rates making stocks the MUCH BETTER VALUE than bonds. That is no doubt behind the recent bounce as it was behind the March 2020 bounce when the Coronavirus crisis was far from being solved.
This last part explains our bullish bias now even in the midst of an unclear and unsettling environment.
What To Do Next?
Discover my top picks for this hectic market environment.
I am referring to the 10 stocks and 3 ETFs in my Reitmeister Total Return portfolio that firmly beat the market last year. And well ahead of the market once again in 2022 with a gain of +2.57% while most other investors are still licking their wounds.
How is that possible?
The clue is right there in the name: Reitmeister Total Return
Meaning this service was built to find positive returns in all market environments. Not just when the bull is running full steam ahead. Heck, anyone can profit in that environment.
Yet when stocks are trending sideways, or even worse, heading lower…then you need to employ a different set of strategies to be successful.
Come discover what 40 years of investing experience can do you for you.
Plus see get access to my full portfolio of 10 stocks and 3 ETFs that are primed to excel in this unique market environment.
Wishing you a world of investment success!
SPY shares fell $2.41 (-0.54%) in premarket trading Wednesday. Year-to-date, SPY has declined -5.52%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
Is a Recession Coming? StockNews.com
