A bear market usually indicates peak inflation

Investors have been waiting for high inflation readings to moderate for months on end, and now it continues


alcohol market

You are likely to achieve this result.

That’s according to the Leuthold Group’s chief investment officer, Doug Ramsey, who said in a note last week that a 20% price drop in the S&P 500 usually “unleashes a strong, de-inflationary driver.”

This is because the wealth effect – or the idea that consumers feel richer when they see their portfolios rising – motivates them to spend more money on goods and services and help grow the economy. The exact opposite happens when stock prices drop by a significant amount.

“The negative impact of wealth is definitely there, and it’s powerful,” Ramsay said. The S&P 500 has lost more than $9 trillion in market value during the current bear market, while the cryptocurrency markets have wiped out $2 trillion in value, so it’s hard to see that it doesn’t affect consumer sentiment and spending habits.

Declining prices are already visible in some commodities, with wood, copper, wheat, cotton and natural gas in significant bear markets, and even oil prices are down about 12% over the past month.

While lower prices will be welcomed by both investors and


Federal Reserve

Since it could signal lower rates of interest rate hikes in the future, that doesn’t mean the stock market pain is over, according to Ramsey. That’s because falling prices indicate the potential for an economy


Recession

It is higher.

“What bothers us most is the setback in the CRB Raw industry index, because we believe it is as close as possible to a daily edition of the ISM Manufacturing Survey,” he said.

The ISM Manufacturing Index is a monthly economic indicator that measures new orders, production, employment, deliveries and inventories for more than 300 manufacturing companies.

In other words, a fall in commodity prices indicates a decline in economic activity, which could mean the possibility of a further decline in stock prices in the event of a recession. And while commodity prices have been dropping, initial jobless claims have been on the rise in recent weeks, suggesting that the labor market may be weakening.

“If inflation is contained and the unemployment rate remains, for example, near 5%, the [Boom-Bust] Barometer weakness may be consistent with mid-cycle deceleration. But for months in a row, we’ve compiled a list of economic and market developments that scream end of the cycle,” Ramsay said.

The unemployment rate is currently 3.6%, so there is room for that to swing higher before the economic scenario turns bad. But activity is definitely starting to weaken, and the US economy is already technically in a recession if the Federal Reserve’s second-quarter GDP growth forecast proves accurate.

“In short, it appears that the bear market in stocks is delivering the anti-inflationary blow that it usually takes. However, there is another economic event that bear markets have been good at predicting – and the evidence is headed in that direction as well,” Ramsay concluded.

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