The Future of The Stock Market in 2023

As I explained in my Friday video, the U.S. stock market is currently pricing in a lot of US recession risk. The insiders are selling heavy. The yield curve is still very much inverted. Having said that, we have more mixed signals in this market than a going on a blind date with a rhino, so let's clean up all the noise and get to the bottom of this right now.

On the one hand, we keep hearing about major tech layoffs. Dell and Yahoo were the latest companies to announce major layoffs this week. We are only  2.5 months into 2023 have already seen more than 77,000 workers in U.S. tech companies go home. On the other hand, when you zoom out and look at the entire job market you get a very different view. We just got a super strong jobs report in the US with the lowest rate of unemployment in 5 decades. 

So what's going on? history shows us that employment data is usually a lagging indicator. Eventually, the rising interest rates will take a toll. Business will hold off on firing employees hoping for times to get better, but if the public will run out of money to spend, those businesses will have no choice but to start firing people. With savings rates as a percentage of disposable personal income at 3% (a historical low not seen since 2008), with house hold debt climbing hard and fast, its a ticking time bomb. Having said that, these are slow developing trends and You can't expect employment weakness to just happen immediately. It's going to take time. 

Same goes for inflation. CPI was 6.5% in December 2022, which is a major drop  from the 40-year high we had just 6 months prior, with a 9.1% CPI reading in June. That is awesome right? 

Well, not exactly, we just got a revision for the prior to CPI months data. U.S. monthly CPI actually rose in December instead of dropping as previously reported. The data for the prior two CPI months was revised up 0.1% in December rather than dipping 0.1% as originally reported. Data for November was also revised higher to show the CPI up 0.2% instead of 0.1%. In October, the CPI was up 0.5%, revised up from 0.4%. Regardless, it seems that core inflation is still quite high despite the celebration that we beat inflation. 

And what about that inverted yield curve? it's been at it for a while. The duration and slope of the inversion are quite alarming. This doesn't mean a recession is coming next week, but historically speaking, the inversion of the yield curve has always been a very good indicator of bad times ahead. Betting against the inversion long term is a bad idea statistically.

In summary, this is a very scary environment for stock market investors. The macro conditions are slowly getting worse, as the entire economy is slowly but surely is starting to feel the effects of the higher interest rates. The insiders are selling a lot more than before and at very high rates historically and inflation is far from over. 

So please, be careful investing in this market.