Medicare Agent News: A First Half to Forget

Thursday, June 30, 2022

A First Half to Forget

By Nicholas Jasinski | Thursday, June 30

Recession Ahead? The first half of 2022 was historically bad for stocks, bonds, cryptocurrencies, and practically every other asset class outside of commodities.

The S&P 500 dropped 20.6%, its worst first six months of a year since 1970. The Dow Jones Industrial Average's 15.3% first-half drop is its worst since 1962, while declines of 29.5% from the Nasdaq Composite and 23.9% from the Russell 2000 are both indexes' worst first halves on record. The Bloomberg U.S. Agg, a broad index of fixed-income securities, fell 10.7% since the start of 2022. That's also its worst first half on record, based on data going back to 1975.

Meanwhile, the U.S. price of oil has gained more than 40% this year, with sizable gains from many metals and agricultural commodities as well (More on the first half's notable performers below.)

As for the second half of 2022, the outlook is far from certain. But recession talk is only growing in pitch and intensity—on Wall Street and Main Street alike.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, says this “may be the most anticipated recession ever.” Google searches for “recession” and related terms are as high now as they were in March 2020. Even noted economist Cardi B recently tweeted to her more-than-23 million followers asking about a recession.

Porcelli sees a softer labor market by the end of this year, lower consumer confidence, and drawn-down savings weighing on consumer spending—which makes up nearly 70% of U.S. gross domestic product. Add to that a likely decline in the housing market, less capital expenditures by cautious businesses, stubbornly high inflation, and aggressive Federal Reserve interest-rate increases, and a recession is in the cards for the second half of this year or early in 2023, Porcelli argues.

That needn’t be a deep and drawn-out contraction like the recession and financial crisis from 2007-09, but it will be a marked contrast with the rapid rebound from the pandemic recession in early 2020. Porcelli sees a "mid-cycle slowdown" akin to the 1994-95 experience, which came in the midst of another Fed hiking cycle.

Stocks and bonds have counterintuitively rallied over the past two weeks, as those recession fears have only picked up. That's due to some mental gymnastics by investors: an economic contraction could spur the Fed to slow its pace of its interest-rate increases, putting less downward pressure on stock valuation multiples and less upward pressure on bond yields, which move inversely to prices.

But the Fed and other central banks around the world are fixated on bringing down inflation, and it may take a recession first to achieve that goal. This morning's core personal consumption expenditures price index increased 0.3% in May, for a 4.7% annual rate of growth. That was short of the consensus forecast of a 0.5% rise, but still significantly faster than the 0.17% monthly rate consistent with the Fed's 2% annual inflation goal. The data likely won't sway the Fed from its current rate-hike trajectory.

"Despite renewed falls in equity markets and broadening signs that investors are bracing for a major slowdown in the global economy, most central banks appear determined to press ahead with the most aggressive and synchronized tightening cycle since at least the 1990s," wrote Jonas Goltermann, senior markets economist at Capital Economics. "While policymakers may eventually relent, we think their willingness to impose further pain on financial markets continues to be underestimated."