By Andrey Dashkov, analyst, Casey Research
The market can’t get any worse, it seems.
Millions of investors are experiencing a situation that has never happened in their lifetimes.
It’s easy to see why they’re worried.
And mainstream media isn’t good at giving them the big picture… which is never as simple as it seems.
The news is there to catch the latest trend and take it to an extreme.
So right now, it feels like the sky is falling.
But our job at Casey Research is to provide you with alternatives… warn you of trouble ahead… and point out the positives while everybody else is in panic mode.
Below, I’ll share with you several early signs that we may be past peak panic.
I’m not saying that the market has bottomed. The market is impossible to time reliably.
But there are several signs that investors are fatigued with worry… and they could be ready to start buying again…
Institutional Investors Have Surrendered
Big investors have all but given up.
Fund managers have cut their equity positions to the lowest levels since the infamous collapse of Lehman Brothers in September 2008. That event was the hallmark of the Great Recession.
And now it’s happening again.
Bank of America considers this negative sentiment a bullish sign.
Following this sentiment, the bank’s indicator showed that equities outperformed.
Will they outperform again? The picture is quite different this time. Back in 2008-2009, the Federal Reserve stepped in to “rescue” the economy.
It instilled confidence in millions of investors’ minds.
And it can do so again…
Inflation Expectations Are Decreasing
A University of Michigan survey of households showed that in five years, they expect inflation to average 2.8%. The previous reading was 3.1%.
This may not sound like a big deal, but the Financial Times points out the Fed closely watches this report.
And it could impact its decision-making. Specifically, it could make the Fed hike rates more slowly.
Which means that the widespread fear of high rates raising inflation could ease. And the markets will be eager to start buying again based on a more positive outlook.
And there’s something else that suggests even with the threat of recession, the U.S. economy is in better shape than a lot of investors think.
Recession Without a Downturn?
Defining a recession is tricky. It’s not only about GDP growth.
In the U.S., there’s a body called the National Bureau of Economic Research (or NBER). It’s a private, nonpartisan organization that tracks recessions (among other things).
The idea is to call a recession when the broad economy is suffering, not only when GDP growth slows down.
For example, The Economist says that in 2001, NBER said the economy was in a recession even though it didn’t see two quarters of negative GDP growth.
Right now, we may have the opposite scenario. Even though GDP could shrink, the rest of the economy is healthy enough not to warrant a recession warning.
Real personal income and employment are holding up well, and NBER is paying attention to these variables.
The unemployment rate is at a seven-decade low of 3.6% right now.
And as The Economist points out, even if we see negative GDP growth estimates, they could still change.
In other words, we’re seeing some contrarian bullish signs. And the economy may be stronger than some investors think.
We’ll know for sure in a matter of time. But right now, seeing light at the end of the tunnel is better than panicking.
Analyst, Casey Research