Private Client Group

July 5th, 2022

Fed Inflation Concerns, U.S. Consumer Spending Up, Sentiment Down

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In today’s Steady Investor, we are taking a deeper dive into key factors that we believe are impacting this bear market and what’s to come, such as:

The Federal Reserve is More Concerned About Inflation Than Recession – In comments made this week by Federal Reserve Chairman Jerome Powell, he made it clear that the Fed would rather curb inflationary pressures than protect the economy against potential recession. This line of thinking harkens back to the era of Fed Chairman Paul Volcker, who intentionally (and famously) tipped the U.S. into a recession in the early 1980s by raising rates into double-digit territory to tamp down 1970s inflation. Some of the Fed’s work today is cosmetic, in our view – they want to give the appearance that they are fighting inflation when in reality inflation is largely a supply-driven issue. The Fed may be concerned that higher prices will change consumer psychology into expecting future inflation, which could be self-fulfilling. We see a distinct possibility that later in the year supply issues tied to the war, China lockdowns, and pandemic backlogs still being worked through could ease inflation pressure as the Fed is raising rates, giving the appearance that the Fed’s plan is working.1

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How Can You Survive a Potential Bear Market?
 
High inflation and market volatility concerns come with a lot of worries from investors about how to manage their investments if the market reaches bear market territory.

Don’t despair! You can potentially avoid the most harmful hazards of a bear market on your investments by making use of some useful tools I offer in our free guide – The Zacks Bear Market Survival Kit.2

This guide discusses some key tools to prepare for a bear market, including:

In this guide, you’ll get our viewpoint on the most important moves you can make to weather a recession. Don’t wait—if you have $500,000 or more to invest, get this guide before the storm hits.
 
The Zacks Bear Market Survival Kit2

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U.S. Consumer Spending Ticks Higher, but at a Slower Pace – Americans are still out spending in the U.S. economy but at a slower overall pace. In May, consumer spending rose by a seasonally adjusted 0.2%, the slowest pace of increase in 2022 but still a sign that households are hanging on. Personal incomes grew by 0.5% in May, which was consistent with April’s increase but failed to keep pace with inflation. Once adjusted for inflation, personal after-tax income fell by 0.1% in May, which can be a hindrance to overall spending. Retail sales fell for the first time this year, but largely as consumers continue to shift spending from goods to services. Orders for long-lasting durable goods like refrigerators, cars, and washing machines continued to increase, rising 0.7% in May and marking the 7th increase in eight months. Orders for nondefense capital goods, which is a good indicator for business investment, also ticked higher by 0.5% in May. The housing market continues to be resilient as well, as the number of U.S. houses that went under contract also rose. As likely expected, consumers pulled back at the pump, with gasoline sales falling 8.2% compared with the same week last year.3

Meanwhile, Consumer Sentiment Falls to All-Time Lows – Even as consumers spend slightly more and experience higher wages – within one of the strongest labor markets in decades – their attitudes about the U.S. economy continue to darken. The University of Michigan’s Consumer Sentiment Index, which is a bellwether for how consumers feel about the U.S. economy, fell this month to its lowest point ever. This reading is one of the key reasons we believe the bear market may not have much further to go – consumers feel worse today than they did during the depths of the Great Recession when millions lost their homes and the jobless rate was approaching double digits. The bar for the U.S. economy is arguably as low as it can be, meaning even slightly better than expected data could fuel a stock market rally, in our view.4

With the sudden market changes we’ve witnessed over the past few weeks, investors may wonder if we could potentially reach the bear market territory.

It’s important to remember that inflation and volatility are a natural (if unpleasant) part of the economic cycle. Still, you can potentially avoid the most harmful hazards of a bear market on your investments by making use of some useful tools we offer in our free guide, The Zacks Bear Market Survival Kit.5 This guide discusses some key tools to prepare for a bear market, including:

If you have $500,000 or more to invest, get our free guide today. You’ll get our viewpoint on the most critical moves you can make to weather a recession. Don’t wait—get this guide before the storm hits.

Disclosure

1 Wall Street Journal. June 29, 2022. https://www.wsj.com/articles/powell-says-pandemic-could-alter-inflation-dynamics-11656509259?mod=djemRTE_h

2 ZIM may amend or rescind the “The Zacks Bear Market Survival Kit.” guide for any reason and at ZIM’s discretion.

3 Wall Street Journal. June 30, 2022. https://www.wsj.com/articles/inflation-consumer-spending-personal-income-may-2022-11656531317

4 Yahoo Finance. June 24, 2022. https://finance.yahoo.com/news/consumer-sentiment-university-of-michigan-june-final-142848659.html

5 ZIM may amend or rescind the “The Zacks Bear Market Survival Kit.” guide for any reason and at ZIM’s discretion.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
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