The stock market has rallied 24% off the October 2022 low, but corporate profit estimates for 2023 have come down 13%. Consumer spending has rebounded from some dips, but credit card debt has surpassed $1 Trillion. Year-over-year inflation has dropped but real wages after inflation were down 4.4% in 2022 according to Forbes (5/17/2023 article by John M. Bremen).
These statistics do not point to a healthy economy. I hope we can avoid a recession, but 34 years in this industry as a Tulsa financial planner tell me the risk of a recession is still pretty high.
The index of Leading Economic Indicators is down for the 13th month in a row. The 2-year Treasury rate is still significantly higher than the 10-year Treasury yield indicating that the cost of money has gone up considerably for businesses and consumers. Historically, these two combined data points have always presaged a recession.
I hope I’m wrong and maybe low unemployment will keep consumer spending strong while corporate profits normalize after the sugar rush of federal over-borrowing and spending. If not, there could be some turbulence for the markets this summer and fall. I have personally taken some profits into this current rally without deviating from my long-term strategy.
Be sure to check in with your financial advisor to see what your recession risk strategy is and discuss your investment policy and process.