From commercial real estate crisis beginning to gain steam to an oddly irrational market. Are we at the beginning of an unusual recession this year? Is a major recession unfolding and we're not seeing it? That's what we're going to attempt to answer in this video and article.
Watch our detailed video to learn more about this major issue:
There are a few things to watch for this year.
The first one is how irrational the market is and how S&P 500 P/E ratios have stayed elevated while the rate expectations cuts have faded.
Another one is that forward P/E ratios usually lag behind the median forward P/E ratios, meaning that we might be already in a downtrend or starting to be in one and not know it yet. These things usually take time, in some cases, even a few years.
On the other hand, the labor productivity just set a new record high recently, which is a reason to justify the high P/E ratios across the market, even in a shaky economy.
So how can we go into a recession?
The answer is the Fed, specifically, if the fed makes a big mistake such as cutting the rates too fast.
Why is this damaging?
When the fed started its rate increase cycle, the inflation was high and the rated were zero. This means that the fed started from a low point and went up from there.
If the fed starts cutting too early and the inflation goes up more, this early cut can force the fed to take significantly more drastic actions than before because this time, the fed is not starting from zero. The rates are already high and to control the inflation, the fed has to go way higher than before.
Based on predictions, the expected rates, if this scenario plays out, can be 9% to 10%.