Wealthion: “Investors Better Buckle Up” For the Rocky Year Ahead
Since the Federal Reserve started raising interest rates in April, stocks have continued the downward trend that began at the start of 2022. And interest rates have soared at their fastest rate in decades.
But inflation continues to remain high, and economic conditions continue to show signs of decline, especially as the labor market appears to have been looking overly strong based on the latest data. That makes it a mystery as to the Fed’s increasing hawkishness going into the end of the year.
Typically, a tightening cycle leads to a recession most of the time, although there have been a few “soft landings.”
No matter how that plays out, a tightening cycle gives way to an easing cycle. That allows asset prices to rebound in time, and for the economy to move higher following a slowdown.
Based on the probabilities, investors should expect a recession. For this cycle, bond yields have already resulted in an inverted curve.
That’s been a completely accurate indicator for a recession. And with the curve at its most inverted in decades, those betting on a soft landing may be disappointed.
With other data such as permit orders for construction showing a decline, the data overwhelmingly points to a wild ride for investors next year. The real question is how much of a recession has been priced into the stock market going into year-end.