Good And Bad News This Week For Investors

Published Friday, May 5, 2023 at: 9:05 PM EDT

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There was good and bad news for investors this week: The good news was that the economy is not sliding into a recession anytime soon, despite Wednesday’s quarter-point interest rate hike by the Federal Reserve -- the tenth hike in the past 13 months. The bad news was the same: The economy is not sliding into a recession anytime soon, despite the most aggressive monetary tightening campaigns in modern history. 

With Friday’s news that the economy created 253,000 net new jobs in April, the surprising strength defied expectations. It makes it difficult to imagine that a sharp slowdown will suddenly emerge in the next few months. 

The central bank wants to slow the economy to eradicate the dangerous inflation mentality that infiltrated the economy after massive pandemic fiscal stimulus in 2020 and 2021 and subsequently reinvigorated with a vengeance after Russia's invasion of Ukraine caused an oil price spike.   

Overall, it is a net positive that a 1000% increase in lending rates -- from .5% Fed funds rate in March 2021 to the current 5% -- has not tipped the economy closer to recession. It unfortunately does drag out the historic rate-hike campaign. However, the surprising resilience gives the central bank time to fine tune its policy aim of wringing inflation psychology from Americans economic mindset while not hitting the brakes so hard that it causes a recessionary cycle. Slow growth and keeping rates high for longer than expected is better than slipping into a recessionary cycle in which the economy shrinks for two or more quarters.  

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With 9.6 million job openings and 5.7 million American workers looking for jobs, more jobs are about to be filled. More Americans will earn income and spend it, and that will increase the size of the economy. A recession can’t occur when the economy is growing.

The question is: Can the economy expand slowly while monetary policy wrings inflation psychology from the American financial mindset?  

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The stock market has been holding up, despite the uncertainty. The Standard & Poor’s 500 stock index closed Friday at 4136.25, up +1.85% from Thursday, and down -0.80% from a week ago. The index is up +84.87% from the March 23, 2020, bear market low and down -13.77% than its January 3, 2022, all-time high.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.  

 


Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.

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