A U.S. Recession Remains Unlikely

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In his Daily Market Notes report to investors, while commenting on a recession, Louis Navellier wrote:

Unlikely U.S. Recession

Another huge late rally out of the red on Friday continued into early trading today. 

The market continues to seek a firm bottom in the strong downward trend, with the Dow now on the worst losing streak since 1923. Naysayers point to the VIX not being able to stay above 30 for long as a lack of a sign of capitulation. Credit spreads are also not reflecting fears of a serious economic slowdown and fixed income new issuance remains firm. 

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The S&P Index has bounced meaningfully every time it tests a close below an official 20% correction below its early January all-time high. The primary bull case that a U.S. recession remains unlikely is the strong balance sheet of consumers, bolstered by market gains of $40 trillion during the pandemic having only given back $5 trillion this year, and the still very healthy employment picture.

Market pundits argue that the strong consumer may actually make it more difficult for the Fed to achieve its determination to bring down inflation trends, increasing the likelihood their monetary tightening will overshoot an attempt at a soft landing.

This week there is another wave of retail store earnings releases, including Nordstrom, Inc. (NYSE:JWN), Best Buy Co Inc (NYSE:BBY), Macy's Inc (NYSE:M), and Costco Wholesale Corporation (NASDAQ:COST), which may confirm or offset the brutal declines seen in Target and Walmart last week.

While there is some relief in the Covid trends in China, the numbers are rising again in the U.S. with the CDC saying a third of Americans, the more vulnerable ones, should consider remasking indoors. On the Russian front, Starbucks has announced they will follow McDonald's and sell their stores in the country.

Interest rates are modestly higher this morning, but the 10-year U.S. rate at 2.81% remains well off its recent highs.  Crude oil & natural gas remain near their highs for the year and gasoline continues to set new all-time highs.  The U.S. dollar is softer, having now retraced a full month of gains. Crypto has stabilized but remains at a year low.

Interestingly, overall earnings estimates are holding up well, thanks primarily to big increases in the energy sector as analysts cautiously wait for more guidance from management teams.

Consumer Sentiment Is Key

Despite the opening strength this morning, the market still feels heavy with the elephant in the room being the retail investors, who after pumping $1.3 trillion into equities during the pandemic have only pulled out $46 billion in the last 7 week selloff, largely sitting on their hands so far.

As with the economy, consumer sentiment is perhaps the key to market trends in the weeks ahead until the next earnings cycle. Continue to upgrade the quality of your portfolio opportunistically until a firm bottom is established.

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Despite the immense popularity of European soccer domestically and around the world, nowhere comes even close to the overall earning power of elite U.S. athletes. According to Forbes' latest Highest-Paid Athletes ranking, 35 out of the 50 are Americans. The list takes into account on- and off-field earnings of athletes, and it is the incredibly lucrative deals that the established U.S. players are signing away from their day job that really tips the balance. Source: Statista. See the full story here.