Welcome back market watchers, Phil Rosen here. Dust off your dictionaries because today’s GDP release might reignite the recession debate that’s proved as semantic as it is economic.
Stock buybacks have hit record levels this year but they’re about to get hit by taxes. These 10 companies have been the biggest buyers of their own shares in 2022.
3. Meta Platforms
5. S&P Global
7. Wells Fargo
8. Bristol-Myers Squibb
9. Lowe’s Companies
10. Morgan Stanley
The year kicked off with back-to-back negative GDP readings, but the headline today should look more upbeat, with growth of 2.4% expected.
But no matter what politicians may tell you (midterms are less than two weeks away), a positive print doesn’t mean all’s fine and dandy.
Forecasters have penciled in bleak housing data, for example, among other downbeat numbers. Look out for the report at 8:30 AM ET.
One more thing to help you sound smarter during your water cooler chats today: Tech earnings have so far fallen flat this week, with names like Alphabet and Microsoft pointing to troubles in digital advertising.
And speaking of troubles, below I’m breaking down why the biggest name on Wall Street is expecting an extended run of bad news on the horizon.
1. There are a couple things on Goldman Sachs’ radar at the moment, and neither are particularly upbeat. We can look first to the bank’s top exec.
Speaking at the Future Investment Initiative summit in Saudi Arabia, CEO David Solomon not only warned that a prolonged recession is approaching, but that the Fed will likely raise interest rates above 4.5%.
“There is no question that economic conditions are going to tighten meaningfully from here,” the exec said, adding that even if policymakers hike rates to 4.5%, they may push them even higher depending on how the labor market reacts.
“If they don’t see real changes in behavior, my guess is they’ll go further,” he maintained. “Generally, when you find yourself in an economic scenario like this, where inflation is embedded, it’s very hard to get out of it without a real economic slowdown.”
Goldman’s analysts got in on the gloom, too. The bank’s strategists said the S&P 500 could plunge to 2,888 in the event of a severe recession, which would mark a roughly 25% crash.
“The broader case for US equities does not look very strong and the normal conditions for an equity trough are not clearly visible yet,” according to a research note published earlier this week.
While the bank acknowledged that markets have priced in additional Fed rate hikes in November and December, it said investors have yet to account that aggressive policy could carry on well into next year.
And why wouldn’t policymakers stay aggressive? The last Consumer Price Index showed inflation running at a four-decade high of 8.2% — which means the Fed is struggling to get it anywhere close to its 2% target. Other commentators have predicted even 3% in two years is a longshot, and that inflation could hover around 6% for another five years.
Remember, the Fed is raising interest rates in an effort to cool the economy. Higher rates mean borrowing is more expensive.
- If borrowing for mortgages or credit cards cost more money, people have less disposable income.
- When people spend less money, there’s less demand and prices can fall back to earth.
- But the less people spend, the slower the economy grows, which raises the odds of a recession.
What’s your recession take?
A) We’re already in one
B) Recession in the next 6 months
C) Recession in the next 12-18 months
D) The US will avoid a recession
2. European stocks and US futures struggle for direction early Thursday, as investors brace for today’s European Central Bank meeting, which is expected to deliver a 75 basis point rate hike. Here are the latest market moves.
3. On the docket: Apple, Amazon, and MasterCard, all reporting.
4. Experts are getting bullish on small cap stocks, even though those are the companies that usually struggle when the US economy is weakening. Here’s the case for the surprise pre-recession call and what to buy right now.
5. The most popular US mortgage now costs Americans more than it has in 21 years. The housing market continues to struggle against the Fed’s policy path, and with the latest data showing rates on a 30-year fixed mortgage hit 7.16%, borrowing hasn’t been this expensive since 2001.
6. Morgan Stanley’s top strategist said investors should look for the bear market to end in the first quarter of 2023. Mike Wilson said the current rally in stocks has room to run. Notably, he expects indexes to hold up despite the outlook for weaker spending around the holiday season.
7. The housing market has a big disconnect that can’t last and prices for new homes have a long way to fall. The chief economist at Pantheon Macroeconomics said new home sales aren’t quite aligned with mortgage demand, and the market is far from a sustainable equilibrium. Now, he said homebuyers are scrambling to sell before prices plunge.
8. This 27-year-old real estate investor who owns nine properties in Alabama said you shouldn’t sleep on the Birmingham market. “It’s a great place where you’re going to see steady growth over time,” the property pro said. He shared his top reasons why to capitalize on the money-making opportunity.
9. A market-crushing fund manager broke down his investing strategy and how to avoid landmines in international markets. Even as Europe barrels toward a recession, there’s still a way to approach foreign stocks and make gains. Get the full scoop from this top 3% money manager.
10. Meta stock cratered 20% after the company missed on earnings. This week’s slate of tech earnings have seen Facebook’s parent company as well as Alphabet, Microsoft, and others stumble. Companies are dealing with a slowdown in digital ad growth, a closely watched barometer of health of the broader economy.