Global strategy leader JPMorgan Asset Management, David Kelly, currently ensures, it is not easy to know whether the United States has already entered a recessionabout to do it or, on the contrary, he will be able to avoid it.
In an interview with Insider Businesswhich makes it clear that although the recession doesn’t officially come back until a committee of economists says so, it’s just a technical procedure.
There are several key indicators to determine the economic health of the country that has deteriorated over the past month, for example, wages, retail sales or industrial production.
The withdrawal of fiscal incentives, the weakening of the real estate market and consumer confidence, as well as a stronger dollar, are also significant obstacles.
Employment, the only positive note against the recession
It’s not very clear, Kelly emphasizes, but all the indicators show the recession: “The only thing we can hold on to is job growth.”
But, although the data are positive, they are not enough to be calm, warns the economist. It’s okay unemployment rate of 3.5% is really lowthis growth may decline in the next 2 months.
“It’s because employment is strong, or job growth is paying off, not because the economy is strong,” Kelly said. “It’s because we had a big pent-up demand working class after the pandemic, with a boom of demand, quit a lot baby boomers and less immigration.
Kelly adds to that until they come back to him align job offers and the number of unemployed people, , growth is likely to continue. But that does not mean the economy is strong: they are echoes of the past.
Business profits and consumer spending
Other people indicators that point directly to the recession, Kelly argues, are corporate profits. They continue to beat revenue and bottom line forecasts and it’s getting harder to keep up.
The increase in the price of food and gasoline it disproportionately affects low- and middle-income families, according to Kelly.
Stopping the rise in inflation is now the main priority of the Federal Reserve (Fed)., but Kelly worries that the US central bank will overreact in response to criticism it is receiving for ignoring the threat of price increases. In his view, the main factor is supply costs and his room for maneuver is limited.
“I think the Fed thinks they are running the economy, but really, they are trying to steer a small boat with small oars and in very rough seas. It is the sea that is running the economy, not the Fed .”
However, he believes the US economy still has a chance to avoid the recession if inflation is peaking, as the price of gasoline suggests. That would cause the Fed to unleash a rate hike, which would stimulate consumption and economic activity, and the resulting reflection on companies.
Because of this possibility, together with the fact that the stock market tends to rise over the long term, that recently rally bullish is “reasonable”. In fact, JPMorgan sees 15% upside potential for the S&P 500.
Tips for investing and protecting your money
Generally, shares are currently slightly below fair valueafter starting the year in high gear, Kelly explains to Insider Business. Trust them to achieve a 6% or 7% return in the long term.
“There are many ways to position portfolios to take advantage of this more benign environment,” Kelly wrote in a note on Aug. 1, 2022.
But not all sectors offer the same opportunities.
As indicated, you should avoid those related to the discretionary consumption sectors and those basic products, because they have high ratings and suffer when consumers do. High inflation would always reduce profit margins in these sectors, he says.
On the contrary, it is convenient to bet on these 4 for their valuations and/or the ability to maintain the level in the context of the economic recession: energy, finance, healthcare -due to the high demand for these services that is expected in the future- and technology.
For Kelly, some listed technology companies were expensive at the end of June, unlike energy companies. “They’re very cheap,” he says, not particularly concerned with the fact that the world may turn to renewable energy.
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