The recent spate of economic data continues to point to a weakening economy, but one that is not yet precipitously falling into recession.
If you want to ignore the Index of leading Economic Indicators, the net percentage of banks that are tightening lending standards, the decrease in the fed’s balance sheet, shrinking M2 money supply, negative ISM surveys, and the inverted yield curve, you may do so at your peril. They all point to a weakening economy. However, we need to see credit spreads to widen and financial conditions tighten before we believe a recession and bear market are imminent.
The salient issue here is that an unprecedented surge of inflation occurred over the past four years. Therefore, prices need to fall, not just go up more slowly, to heal the consumer and the economy. You cannot have a healthy economy without a healthy middle class. This is because it is the middle class that actually does most of the work and produces the vast majority of the goods and services in the economy.
Buying and holding a 60/40 portfolio is dodo-bird investing. Correctly identifying the second derivative of inflation and what asset classes, style factors, and sectors to own in each macroeconomic condition is the key to investment success.Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors.
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