Private Client Group

June 13th, 2022

Stagflation Fears, Americans Pessimistic About Economy, Retail Inventory Problems

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In today’s Steady Investor, we cover current events that we believe are shifting the current state of the market, such as:

Stagflation Fears are Back – Or to state it more accurately for 2022, stagflation fears never left. For much of the new year, market prognosticators have been warning that the global economy was setting up for a year of rising inflation and slowing, and eventually negative, growth. Skeptics seemed to be vindicated in Q1 when the U.S. economy posted -1.5% GDP growth and record year-over-year inflation rates, and the warnings of stagflation have persisted since. A ‘major warning’ came last week from the World Bank, which significantly lowered its global GDP forecast and warned of several years of high inflation and slow to negative growth. Comparisons to the 1970s period of stagflation abound. But there was one glaring issue with this gloomy forecast – the World Bank still expects the global economy to grow by 2.9% in 2022. The alarm bells were ringing because the bank’s original forecast was for 5.7% growth, but few pointed out that the expectation is still for sturdy growth for the balance of the year and next. For investors, these drastically lowered expectations can ultimately be a good thing – if everyone fears the worst, but the economy does even a tiny bit better than expected, that is sometimes all stocks need to stage a rally.1

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Will the Market Recover Anytime Soon?

 We are currently witnessing a very volatile market, and in times like these, investors may emotionally attach themselves to news and headlines that affect their financial decision-making process. The market has always fully recovered, but what about this time?

To help you get the answer to this question and more, we’ve put together a free investing playbook with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today.

Download – The Black Swan Investing Playbook2

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No Love for the U.S. Economy– For 12 months straight, the U.S. economy has added a robust 400,000 jobs per month, the strongest period of job gains dating back to 1939. Wages are higher and workers hold many of the chips, with the unemployment rate sitting near a historic low of 3.6%. But few Americans are happy about it. In a recent Wall Street Journal­-NORC poll, conducted with the University of Chicago, a staggering 83% of respondents said the economy was in a poor or ‘not so good’ state. 35% of respondents reported being unhappy with their financial situation, which marks the highest level of dissatisfaction since 1972 – the first year of the survey. According to the poll’s findings, people are more unhappy today than they were in the aftermath of the 2008 Global Financial Crisis when the jobless rate was double-digit and millions of people lost their homes. If anything, the survey seems to underscore just how much Americans dislike higher gas and food prices, because thinking the economy is worse off today than it was in 2008 and 2009 is simply not objectively correct. Much like stagflation fears, this survey shows just how much sentiment has turned negative even when there are many strong economic fundamentals – a bullish setup, in our view.3

Big Retailers are Stuck with The Wrong Inventory – Major U.S. retailers like Target, Walmart, and Macy’s have an inventory problem. Over the course of the last year, these companies adjusted to shifting consumer behavior, which saw Americans spending more on home furnishings, electronics, and casual clothes. The pandemic fueled a work-from-home movement that was also accompanied by a rush to buy homes and remodel them, which played well for big purchases of the aforementioned goods. But because of some miscalculation on retailers’ parts, coupled with supply chain snags that are seeing many of these goods being delivered on delay, companies like Target and Walmart are stuck with inventory that consumers are not necessarily demanding as much. Inventory in the April quarter rose by 43%, and has saddled retailers with goods that are likely past the ideal selling window. That has led to earnings adjustments to the downside for many of the key players, with many companies indicating they will be marking down many goods in the current quarter to try and clear inventory. That likely means smaller operating margins for retail players, but could also mean some bargain buys for consumers in the coming weeks and months.4

Events, such as the ones listed above, can easily cause uncertainty when trying to plan your financial future. While it’s difficult to remain calm, it’s also important to take actions right now that have the greatest potential to define your financial future.

That’s why we have put together a free investing playbook5 with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today. You’ll learn about seven time-tested guidelines to help you seek investing success.

Disclosure

1 Wall Street Journal. June 8, 2022. https://www.wsj.com/articles/what-is-stagflation-meaning-explained-global-economy-worldbank-11654723092?mod=djemRTE_h

2 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its discretion.

3 Wall Street Journal. June 6, 2022. https://www.wsj.com/articles/inflation-political-division-put-u-s-in-a-pessimistic-mood-poll-finds-11654507800?mod=djemRTE_h

4 Wall Street Journal. June 7, 2022. https://www.wsj.com/articles/target-warns-profit-will-drop-because-it-has-too-much-stuff-11654599664?mod=djemRTE_h

5 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its 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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