The following is an amended version of the Dec. 8 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack or Supercast.
The emerging narrative this week is concerns about recession and interest rate hikes. These have been voiced from authoritative sources, including from two major Wall Street bank CEOs: Goldman Sachs’s David Solomon and JPMorgan’s Jamie Dimon. The former spoke at a conference about a slowing economy and the latter went on CNBC to talk about how inflation would erode consumer confidence next year. Dimon also expressed concerns about geopolitical issues.
Dimon is certainly one individual worth listening to when it comes to economic forecasts. As the CEO of the country’s largest lender he will be keenly aware of the kinds of issues that consumers in particular might have to deal with. Some context is necessary here as Dimon did hedge his comments (watch the video).
Inflation Nation
It’s impossible to deny that inflationary pressures are real. Hard to believe we’re only one year or so away from hearing actual arguments from smart people about how inflation was transitory. It now looks like the Fed has a real fight on its hands with this inflation business. In fairness, this is what they’ve been telling us the last four months or however long it’s been since Jay Powell’s Jackson Hole speech.
So what if CPI is not running as hot as it was earlier? If the CEOs from Goldman and JPMorgan are telling us they’re worried about inflation, we probably need to listen.
Recession
Will this all lead us into recession in 2023? The possibility is being attributed to the sell-off we had in stocks earlier in the week. But the selling has since fizzled out, leading one to conclude that the concerns can’t be all that serious. That makes sense in light of the fact that it is hardly a new development in the first place. We’ve known for some time that we will likely have a recession next year. We’ve also known that the Fed is serious about fighting inflation. Some of us might have been in denial about these things, but we’ve certainly known about them.
The overall momentum in stocks the last two months has been upward. It looks like investors just need something more to justify continuing to bid up risk assets. This week hasn’t provided that. Maybe producer price inflation will tomorrow. Otherwise we’re probably in a holding pattern until at least next week when we get CPI (Tuesday) and Fed interest rate (Wednesday).
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