“Vibe-cession”: The Buzzword of 2024 That Should Scare Stock Investors

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Economists, analysts and commentators like to coin words and phrases to capture the economic zeitgeist. This year, there’s been talk of a “vibe-cession” in the U.S. economy. It might sound harmless enough, but a vibe-cession isn’t something to celebrate.

Investors shouldn’t base their strategies on catch phrases, of course. Whether it’s “transitory” inflation or the “Magnificent Seven,” buzzwords are useful for helping people understand the prevailing sentiment of the financial markets.

With that in mind, let’s unpack the vibe-cession phenomenon and consider its implications for today’s stock investors.

A tale of two economies

When famous economist Paul Krugman is warning that America is in the midst of a vibe-cession, you can be sure that this concept has taken root in the lexicon. Let’s start with the basics: what is a vibe-cession, and who coined the term?

To put it simply, “vibe-cession” refers to the disconnect between optimistic economic data points and financial-market behavior and the general malaise that many Americans feel as they try to make ends meet. It’s the classic friction between Wall Street and Main Street, but at least now it has a catchy name.

A CNBC report seemed to attribute the term to Joyce Chang, JPMorgan’s chair of global research. On the other hand, a MarketWatch article claimed that Bloomberg columnist Kyla Scanlon coined it.

Regardless of who came up with the vibe-cession concept, it’s in the conversation now, and we’re all stuck with it in 2024. It’s a pithy summation of the recessionary “vibe” that America’s middle class is feeling now.

America hasn’t officially been in a recession since mid-2020, but there’s no denying the day-to-day financial struggles that many people are experiencing. It’s a tale of two different economies — with one for the haves and another for the have-nots.

Wall Street is certainly the domain of the haves, and mega-cap stocks are booming as the Dow Jones Industrial Average (DJIA) just logged its best May performance since 2020.

The S&P 500 (SPX) and Nasdaq (NDX) also performed well in May and currently hover near all-time highs. Hence, if you only stare at mega-cap stock charts and never venture out into the real world, you might not understand why anyone would feel a recessionary “vibe” right now.

It’s all about inflation

When commentators claim that all is well with the U.S. economy, they’ll typically point to the sub-4% unemployment rate. Of course, one could debate the validity of the Bureau of Labor Statistics’ (BLS) unemployment figures, which tend to exclude part-time workers, people who gave up looking for work, etc.

Then there’s the gross domestic product (GDP), another commonly cited gauge of the nation’s economic health. For the first quarter of 2024, the Bureau of Economic Analysis recently revised its year-over-year U.S. GDP growth rate downward from an already uninspiring 1.6% to an even more anemic 1.3%.

Nonetheless, there’s always someone out there to call the glass half-full instead of half-empty.

Thus, while acknowledging that 1.3% GDP growth “looks discouraging,” Nationwide financial markets economist Oren Klachkin contended that it “belies solid underlying momentum, as the economy’s core — private domestic sales to domestic purchasers — showed a healthy expansion of 2.5% annualized.”

In a similar vein, one could simply say that U.S. consumers are “more prudent” and their income is “softening” rather than admitting that working-class Americans are under persistent financial pressure:

EY-Parthenon Chief Economist Gregory Daco isn’t kidding when he describes April’s U.S. savings rate as “low” in the X posting above.

As MarketWatch’s Andrew Keshner points out, a 3.6% savings rate is “near the rates seen in early stages of the so-called Great Recession of 2007–09.”

However, the be-all, end-all gauge for the Average Joe and Jane is consumer prices.

I’m certainly not referring to the core Personal Consumption Expenditures (PCE) index. Although it may be the Federal Reserve’s preferred inflation gauge, it excludes food and energy prices, which are vitally important to the “vibe” of middle-class Americans.

For mega-cap stock investors, assessing this “vibe” is essential in determining how much capital to allocate toward risk-on assets. Sooner or later, the inconvenient truths on Main Street will be reflected in equity prices.

Use your eyes and go with your gut

The best response isn’t to obsess over the University of Michigan’s Consumer Sentiment Index or crunch various inflation stats on a spreadsheet. Rather, investors should consider their personal experiences and other anecdotal evidence, which economists and statisticians tend to prematurely dismiss.

If you’re feeling the so-called “vibe-cession” in your paycheck and your purchasing power, then it’s not just a vibe. It’s as real as any official figure from the experts, and you have every right to allocate and diversify your portfolio holdings accordingly.