Economic and Market Outlook -- 1970's REDUX

The worst of Covid’s health risks seemed to be over as we entered 2022, but the ramifications of generous monetary and fiscal policies left the Federal Reserve with the task of walking a tightrope in its fight against 40-year high inflation. The Russia/Ukraine crisis made matters much worse, and now threaten a global recession. US businesses and consumers are strong enough to perhaps skirt a

recession, but “sticky” inflation in housing and wages threatens to be a long-term structural inflation problem.

1970’s Redux? The labor market hasn’t been so tight since the ‘70s, and housing affordability has not been so low. Low unemployment usually means strong consumer confidence; but as in the ‘70s, there is a huge decoupling—jobs are plentiful and consumers are miserable. So are business leaders, who actually worry more about inflation and recession than they did in the disco era. The presentation will explore the Federal Reserve’s hiking of interest rates in an effort to arrest inflation, which is exacerbated by its attempt to reverse the massive Covid-era Quantitative Easing which ballooned its balance sheet. Indeed, unprecedented easy money has resulted in “too much money chasing too few goods” as was seen in the ‘70s. All manner of assets have been bid up, to include stocks, bonds, housing, art, commodities, and cryptocurrencies. Current times also saw the advent of NFTs, meme stocks and SPACs. Unwinding it all will likely result in volatility. In the intermediate term, stock market returns are likely to be more modest than they were in the growth regime of the last 15 years. However, the long term outlook is very bright!