From Interest Rate Hopes to Recession Fears and Back Again and Some Stats

Good Morning Ladies and Gentlemen

“One must beware of ministers who can do nothing without money and those who want to do everything with money.“

Indira Gandhi

Interest Hopes

Over the past few months, investors have been optimistic about declining interest rates. However, investor sentiment quickly worsened after the recent Fed meeting, during which Fed Chairman Powell indicated the possibility of an interest rate cut at the September meeting. Was this not what investors hoped to hear?

Recession Fears

The sentiment worsened due to unexpectedly poor leading indicators for the U.S. economy. The industry’s widely-watched ISM Purchasing Managers’ Index fell further into the contraction zone. Additionally, weak U.S. labour market data harmed the markets. In July, the U.S. economy not only created fewer jobs than anticipated, but unemployment reached its highest level in almost three years, with wage growth stagnating. This caused significant concern among market participants and heightened fears of a potential U.S. recession. It’s worth noting that in recent months, news of stagnant wages would have been well-received, as it would have signalled an end to the increasing wage-price cycle, potentially leading to lower inflation and raising hopes of an interest rate cut by the central bank, which was essentially announced for the September meeting.

It’s all about Perception

It’s all about perception! While numbers or actions may be well perceived at one moment, they may be perceived differently in a slightly different environment or context, combined with other data or actions.

Back Again

While writing this edition of “Stefan’s Weekly”, I would not be surprised if market participants looked back at last week’s and this Monday’s sell-off and realised they might have been exaggerating. This brings me to a topic I have been thinking about for a long time. Analysts, bankers, brokers, and journalists tend to echo each other. We often see similar comments and conclusions from apparently different sources in the media, on social platforms, and so on, especially when they concern “breaking news”. This is not only repetitive but also numbing. It is particularly concerning and potentially dangerous, especially when certain facts are taken out of context. Many analysts, bankers, brokers, and journalists have exacerbated the situation leading to this recent market correction with comments and puffery vocabulary. I cannot think much of that.

August Stats and Outlook

Since 1960, August has mostly been a positive month for the U.S. stock market, with a 0.1% increase. The performance was significantly more positive in election years, with a 1.4% increase. In 2022 and 2023, August showed a negative performance. However, the last election year, 2020, when President Biden beat President Trump, saw a strong August performance with a 7.6% increase. Let us see what August brings; today, it looks slightly better than after the hiccups in the first days.

Election Years Stats and Outlook

The stock market performance during the last year of a president’s first cycle in office shows a solid upward trend. This year, we already had a solid first half, mainly from seven stocks and also thanks to some sector rotation in Q2 and July. Let us see what the rest of the year brings.

Outlook and Commodities

Given the current state of decreasing and yet still sticky ongoing inflation, commodities present potential opportunities. However, the scenario could quickly turn if Western economies slip into a broad-based recession and China struggles to regain higher growth. Such a situation could swiftly and negatively impact the economic environment for commodities. There are always hopes that commodities can do well even during a recession, perhaps because of fear of underlying inflation, but this never really materialises. Again, I cannot think much of such a scenario. If you believe in a recession, you want to think twice about investing in commodities. If you think recession fears are exaggerated, commodities may be an exciting bet, even more so if inflation can not be tamed the way market participants hope.

My View

In my next “Stefan’s Weekly,” I will share my view on commodities. By the way, in my beliefs, gold is no commodity; it is money.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day and the weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li