Marc Cuniberti On November 29th JP Morgan Bank published an article saying that, “due to macro-economic forces like persistent inflation and ongoing supply line issues, the S&P 500 will collapse about 8% by the end of next year.
Absent rapid Fed easing, we expect a more challenging macro backdrop for stocks next year with softening consumer trends at a time when investor positioning and sentiment have mostly reversed”.
This analyst has voiced many times here on Money Matters that the current semi-rally in stocks may be built on a foundation of hope and hype instead of relying on the fact that inflation remains stubbornly high and the Federal Reserve may not cut rates anytime soon.
Either that or the Feds may break something as they have often done in the past when raising interest rates to near 6%, the current area where interest rates sit now.
The “something” they break may include some more banks, the consumer, or the economy in general. Any one of these may bring markets down hard into 2024.
The economy is powered in a large part by the consumer, and the consumer is powered by how much money each of us has to spend on things, and herein lies the problem.
Many will point to the rise in credit card debt as the harbinger of bad things to come. But advocates of the idea that the consumer is operating on the fumes of rising debt scratch their heads as they watch sectors of the market plow higher in defiance.
Indeed, preliminary sales figures following the Black Friday and Cyber Monday shopping sprees shows another year over year increase in money spent. This in turn has encouraged stock participants to push the buy button, confounding the analysts that say “how can that be” if credit card debt is skyrocketing and defaults on all sorts of debt is rising?
The answer to that one is, yes, it’s true both debt and defaults are rising, but counteracting that is cash and asset levels are still elevated.
In other words, it is thought that consumers have still not spent all their lavish CoVid savings.
As we all know, oodles of money were rained down on businesses and consumers alike to counteract the shutdowns ordered by governments everywhere. All that cash not only fortified consumer checkbooks back then, there was so much money given out, it’s taking a long time for consumers to burn through it.
The JP Morgan folks haven’t missed this concept and have figured out it’s still too early in the game for the increase in both interest rates and inflation to significantly slow down the spend happy consumer.
Folks still want to get out and about, travel and experience life as the horrific shut-in environment still burns hot in their memories.
You could call it a PTSD of sorts, but instead of Post Traumatic Stress Syndrome, my version of PTSD stands for “Post Traumatic Shutdown Syndrome”.
Yes, it was that bad for many, and they’re not going to forget it anytime soon. At least not until the money runs out, which, in my opinion, will be right about springtime as the last hurrah of an overspending holiday season yields inflation-infested credit card bills.
Only then will the proverbial palm of hand strike the forehead in an “oh no” moment of realization that perhaps we spent a little too much and wow, were prices really that high?
And yes you did and yes, prices were really that high.
It’s interesting that despite exorbitantly high prices, consumers spent even more this year than last if post-Thanksgiving sales figures continue through Christmas.
And then we remember that statisticians don’t count number of units sold but instead how much money was spent. And if inflation is high, and it is, then people likely didn’t buy more, they just had to spend more due to the high prices.
And so we go back once more to the JP Morgan prognostication that macro-economic headwinds, no matter what the source, will put a damper on stock buyers.
In my opinion, the trifecta of higher costs to suppliers, dwindling CoVid savings and higher overall costs to consumers will all come together to offer up the reason why stocks may come down next year: People simply can’t afford to buy much more of anything, including what they sell on Wall Street.
“Watching the markets so you don’t have to”
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249 His insurance agency is BAP INC. insurance services. Email: [email protected]
