The Capitalist Investor - Episode 125

Everyday there is something new we wake up to, but what’s always the same lately is the market’s pain. Sky high inflation, geopolitical risk, slowing economic growth, labor shortage –– the market is in a negative place right now. But is it at its bottom? On episode #125 of “The Capitalist Investor,” Mark is back with Luke and Derek to talk about the stock market’s chance to recover, and the decisions at play to see it happen. The guys know what the Fed should do but that’s not always what they will do. The disconnection can be frustrating, but this week’s episode is all about taking a breath, thinking and preparing for what’s expected.

Outline of this Episode:

  • [1:10] Where the market is at right now 
  • [6:10] This may not be the bottom quite yet 
  • [11:25] The Dems’ distractions and deflections
  • [14:25] Predictions and possible actions 

The market looks like it wants to rally, but we don’t think it’s bottomed out yet

There’s been a lot of turbulence in the market lately and the trajectory points things are going to get worse before they get better. 

In January, the S&P 500 peaked a little over 4800 and now it’s idling in the zone of the 4150 and 4300 range. It’s been taking a ride all day but managed to regroup and close at 4300 –– the highest close in the past three weeks. 

Some believe the market had this modest rally after the Fed announced their updated plan to fight inflation. After their May meeting, Fed chairman Jay Powell said the Fed will raise the official fed-funds rate by 50 basis points to a range between 0.75 and 1 percent. While the news slightly rallied the market, the Fed is still quite behind on their hiking and there’s still a long way to go. 

There are so many negatives the stocks have to combat right now. While some believe inflation has peaked and poised to decelerate –– we’re not sure if that’s the case. Geopolitical tensions continue to rise, and growth continues to slow.  Everyone is bombarded with hard news every day and there’s still too much at play. 

While a course to get back on track is underway, we unfortunately have to ride out some more pain before we get to a better trajectory. 

Pressure continues to increase with what’s left to come

The Fed supposedly has a dual mandate to follow. 

They’re supposed to maintain price stability by fighting inflation. Their role is to also achieve maximum or full employment. Technically, it’s not written that they are supposed to avoid full on recessions. 

As the Fed continues to hike interest rates, demand will eventually come down and inflation will at some point, peak.  But demand is already coming down naturally as people run out of money to spend. And as interest rates continue to increase, a consumer’s spending power weakens.

Higher rates will hurt consumers more than they are being hurt now. We still have a long way to go and as consumers’ spending power decreases, the market will reflect that. When consumers can no longer supply the fire power to corporations, they’re going to begin laying workers off –– people are going to lose their jobs. 

Unemployment doesn’t typically spike until we’re actually in a recession. Anything below 4 percent is usually considered a full employment rate.  Since the rate is only at 3.6 percent right now, it’s uncertain when the Fed will jump and swing their course towards that direction if the rate quickly rises. 

But again, the Fed started hiking rates too late. What’s on our minds is that they will continue to hike us into a recession and during it. And the effects that could have will deepen. 

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Keep Listening to The Capitalist Investor:
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Spending Strategies in a Bear Market, Ep #15
Episode 31:
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Episode 47:
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Episode 63:
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Episode 79:
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Episode 95:
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Episode 111:
Special Episode – Talking Energy with Daniel Turner, Ep. #111
Episode 127:
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