US Presidential Election Cycle and Recessions

By: Nadeem_Walayat

As my analysis of Jan 2023 pointed out (Stock Market Gasping to Reach 4000 Ahead of Earnings Season, Dow New All Time High 2023?)

That there has been no recession in a pre-election year since 1945, instead the recession was most probably likely to take place during 2024 and thus warned to expect upwards earnings surprises for Q1 and Q2 just as have transpired and propelling the S&P to the expected level of 4600. So all of that noise we have heard for the past year across MSM warning of a recession for 2023 and thus scared many investors out of the market until recently proved to be a HUGE nothing burger! A recession was never on the cards for 2023, it's 2024 and definitely 2025 where the real recession risks are. Instead at S&P 4600 recession fears have been replaced with soft landings, or a rolling sector recession, or goldilocks, a recession is coming folks during 2024.

Yes, what the US suffers will be mild compared to what the rest of the world will experience. The UK is definitely going to take a hit with economic pain as the Bank of England is forced to raise and keep rates higher for longer than they should, but that's what happens when one loses control of inflation!

In terms of where CPLIE is heading, well it looks like a tale of two cities, according to the base effect US inflation should be heading higher, where today's 3% could end 2024 on 4% (10th August could see a surprise rise). Whilst the UK is still pending it's base effect drop that is due on release of Octobers data in November, so UK inflation is set to trend lower whilst US inflation higher which suggests upwards pressure on US yields whilst UK yields will play follow the Fed leader so even if inflation falls they will track the US yields higher at least on the short-end. Thus we should see plenty of opps to accumulate US and UK bonds over the coming months, though remember bond prices move ahead of the news so rather than play a wait and see game it's a case acting ahead of the news whilst allowing for fake indices, thus materialising economic weakness in the UK will put downwards pressure on the long-end.

Inflation is by design, run away is a function of incompetence in the management of money printing, they got carried away and printed too much money and now are forced to reign in inflation. So yes there will be a 'recession' so that they are able to press the reset button on the annual change in consumer prices,

last Thursday saw the Bank of England lemmings raise rates to 5,25%, this will be painful because the UK is more sensitive to short rates than the US given fewer have longer fixes in the UK on mortgages etc. in terms of house prices it will be balancing act between economic weakness set against underlying real inflation, whatever house prices weakness occurs it will prove temporary given that the Government will not be able to resist pressing the Print Money button which is what politicians always do that will ignite asset price inflation.

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S&P

Targeting 4600 Mid Summer 2023 Top.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2023 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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