A Wealth of Common Sense: Animal Spirits: Extreme Cost Cutting

A recession can be a self-fulfilling prophecy. As the economy appears to slow, individuals will cut back their discretionary spending. As that happens, the economy does slow. And that entices others to cut back further.

Ideally, policymakers will want to act in a way to prevent that from occurring. At least, when they’re not trying to slow the economy to bring inflation down. So far, early signs are that inflation remains troublingly high.

However, looking at some of the worst performing stocks of the past few months, consumers are making some cost-cutting moves.

Casinos and cruise line stocks have been incredibly poor performers. And streaming services, which saw viewers bounce during the pandemic, are now seeing a decline in paying customers.

These cutbacks are also occurring at a time when energy and agricultural commodities have started to pull back. These assets surged at the start of the year when Russia invaded Ukraine.

A rapid decline in inflation is potentially possible. And with that, we could even move from a high-inflation market to a deflationary market. The past few months have certainly felt like a deflation in asset prices like the stock market. Housing is just beginning to slow.

With bank earnings coming in this week, investors are just now starting to see a collapse in stock earnings. While the market has had some strong-performing days, corporations are hinting at more trouble yet for the economy.

To listen to the full podcast outlining these issues ahead, click here.