The speed at which the economy has nose-dived from optimism to pessimism has taken a lot of people by surprise. That's the impact the Federal Reserve can have on the markets. Consumer confidence is fickle so when the daily news is filled with fears of recession and declining markets it impacts people in a way that causes people to spend less: The Nasdaq is down over 31% from it's highs and this along with all the media headlines of "recession" is generating a more fearful and less optimistic mood.
SNAP just anounced a significant revision in its profit forecasts due to macro economic conditions. Advertising revenue is down.
The mood on the street is somber and consumers are concerned. The critical question is what impact will this decline in consumer confidence and demand have on inflation? Will inflation numbers trend down? If they do, the current economic news may provide sufficient impetus for the Federal Reserve that they need to walk and talk a softer line and send some easening signals, such as for example, that rate increases may be sufficient.
If inflation numbers do not trend down, it seems unlikely that the Federal Reserve would veer away from its current course.
So, the question of whether we are officially in a recession or moving into a recession or whether this is a interim correction in a longer term bull market hangs in the balance. The Federal Reserve is walking a delicate line. Their actions can and do change market narratives.
The market narratives shape both markets and consumer opinions which further shape the narrative and economic activity. Both fear and optimism are contagious.
The unknown question is: "Will the Federal Reserve change or soften their narrative" to ease market and consumer concerns in the event inflation numbers show a declining trend.
Only time will tell. If you have concerns about your portfolio or outliving your assets we invite you to sit down and review your protfolio with us.