GoodGuyDrew t1_j6fmxqt wrote on January 30, 2023 at 12:10 AM

Reply to comment by acneadjr in The case for recession & why retail spending is now more important than inflation. by acneadjr

I think scenario 1 is less likely to be a killshot, given what happened with MSFT after earnings.

Scenario 2 is an interesting prospect and is exactly what the inflation doomers have been shouting - that every previous period of inflation has had periods of cooling followed by even more rapid inflation. The gas prices might signal a resurgence here, but my personal experience (and the data) suggest that inflation in the price of goods is just about done.

My sense is that the probability of us experiencing extreme chop is the same as us experiencing aggressive flatness. Hence, I’m feeling a bit paralyzed here…

acneadjr OP t1_j6fs61w wrote on January 30, 2023 at 12:46 AM

I agree with you on scenario 1. The one difference maker may be the cumulative earnings of the S&P at the end of next week. If it continues to decline optimism may start to fade. I am watching but not diving in to this scenario.

On Scenario 2 I think inflation is sideways to down. However as long as services continue to stay sticky we see the Fed increase or hold rates in '23. I am sort of past inflation, I see this as last year's story.

The story in '23 will start to switch to consumption as it is 70% of the US economy and business investments 18%. As we see these numbers decline GDP falls fast. This is why I am more interested in Retail Sales now. I think it's all about when more hard data starts to show this decline.

GoodGuyDrew t1_j6fzvzi wrote on January 30, 2023 at 1:40 AM

The hard data will definitely tell us plebeians when the tides have turned. But by then, big money will already be on the other side of the trade.

I’ll keep focused on the data for long-term prospects, but I think Fed “tone” and market whim will dictate movements day to day and week to week for the rest of 2023. So as per usual, I’ll just be hoping to get lucky 🍀

Moist_Lunch_5075 t1_j6gydog wrote on January 30, 2023 at 6:18 AM

>big money will already be on the other side of the trade

If 2020 taught us anything, it's that capital flows matter and the economy basically doesn't.

Moist_Lunch_5075 t1_j6gxy79 wrote on January 30, 2023 at 6:13 AM

>Scenario 2 is an interesting prospect and is exactly what the inflation doomers have been shouting - that every previous period of inflation has had periods of cooling followed by even more rapid inflation. The gas prices might signal a resurgence here, but my personal experience (and the data) suggest that inflation in the price of goods is just about done.

This is called the "Whipsaw Effect." It's an expected part of the inflationary prediction. The periods of inflation are also getting shorter and less relatively impactful. It just feels like it hurts more because years of inflation are compounding and we have headlines like the price of eggs to look at... but as the order and contract system catch up and cycles emerge, it'll get easier to ride the inflation waves for companies and that means better margins.

Edit: I do agree that in the nearterm, there's a risk of an earnings recession, mostly agreeing with the dynamics u/acneadjr has laid out... but I would only say that the market may surprise us if things aren't as much of a downward spiral as they're suggesting.

I think looking at consumer patterns is the right place to look overall... I just don't know that it necessarily correlates with a market decline or that it necessarily cyclically builds to the extent it appears it could.