Are We Already In A Recession? Yes, According To Fed Indicator With ‘Excellent’ Track Record

A highly watched economic indicator with a good track record in predicting recessions cut its forecast for second-quarter gross domestic product growth this week, implying the nation has fallen into a technical recession despite economists widely calling for a return to growth in the second quarter.

The Federal Reserve Bank of Atlanta’s GDPNow model on Thursday projected the U.S. economy shrank 1% in the second quarter, slipping into negative territory after economic data showed consumer spending dropped in May, while domestic investments, another component of GDP growth, also fell.

The model, which estimates GDP growth using a methodology similar to the one used for the Bureau of Economic Analysis’ official estimates, has been steadily trimming its second-quarter GDP forecast based on updated economic data that’s fueled concerns of a prolonged economic downturn in recent weeks.

The U.S. economy unexpectedly shrank 1.6% in the first quarter as the omicron variant fueled a record surge in Covid cases, so another negative quarter would indicate the nation has slipped into a technical recession, which is defined as two consecutive quarters of negative GDP growth.

“The model’s long-run track record is excellent,” DataTrek analysts wrote in a note to clients Thursday night, pointing out its average error has been just 0.3 points since the Atlanta Fed started running it in 2011—but was zero through 2019, before the unprecedented volatility around the pandemic.

With an error margin of 1.2 points one month before the government’s first GDP estimate, the model may still ultimately forecast positive growth for the quarter, DataTrek’s Nicholas Colas and Jessica Rabe noted, though they add the indicator will be “important to watch” as its predictive ability improves with time.

Most economists are still predicting a return to growth, with average projections calling for GDP to increase more than 3% last quarter, but many have become increasingly bearish in recent weeks, with Bank of America’s Ethan Harris on Friday downgrading his forecast to zero growth last quarter (from 1.5% previously) after the weak spending data for May.

What To Watch For

The Bureau of Economic Analysis unveils its first estimate of second-quarter GDP growth—or decline—on July 28, but it won’t release a final estimate until September. Adjusted for inflation, consumer spending fell for the first time this year in May, according to Thursday’s data. The worse-than-expected decline makes a second straight quarterly decline in GDP “much more likely,” Pantheon Macro chief economist Ian Shepherdson wrote in a Friday note, forecasting that GDP would fall 0.5% in the second quarter.

However, he notes the National Bureau of Economic Research—“the semi-official arbiter” whose declarations are accepted by the government—“very probably will not” declare a recession unless employment, which remains one of the economy’s strongest pillars, starts declining as well. Rather than purely going off technical recessions, the NBER vaguely defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Despite growing bearishness, many economists aren’t convinced the U.S. will fall into recession—at least not imminently. In a research note on Monday, analysts at S&P Global Ratings said the economy has enough momentum to avoid a recession this year, but warned “what’s around the bend next year is the bigger worry.” The economists put the odds of a recession in 2023 at 40%. One week earlier, Morgan Stanley put them at 35%.

Fueled by government stimulus and the war in Ukraine, prolonged levels of high inflation pushed the Fed to embark on the most aggressive economic tightening cycle in decades—crashing markets and sparking recession fears. “People are really suffering from high inflation,” Fed Chair Jerome Powell testified before Congress last week, noting it remained “absolutely essential” for the Fed to restore price stability, before acknowledging it would be “very challenging” to avoid a recession while doing so.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina

Source: Are We Already In A Recession? Yes, According To Fed Indicator With ‘Excellent’ Track Record

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Five Oversold Small Cap Stocks And One Mid Cap For Bear Market Bargain Hunters

The S&P 500 is hitting new 2022 lows in this year’s brutal selloff leading up to Wednesday’s Federal Open Market Committee meeting where the Federal Reserve’s policy committee is expected to hike short-term interest rates aggressively to tamp down inflation. The large cap index is down 22% from its peak on the first trading day of the year and tumbled 10% in just the past week as the latest readings on inflation showed price increases accelerating. For small caps, the market’s stumble into bear market territory has been exceptionally severe, with the Russell 2000 index down 30% from its peak last fall and back to pre-pandemic levels.

There could be plenty of near-term volatility ahead as the Fed accelerates its rate-tightening cycle. JPMorgan and Goldman Sachs both expect a hike of 75 basis points this week, even though Fed chair Jerome Powell dismissed that possibility at its last meeting a month ago. Last week’s 8.6% inflation reading put central bankers on their heels. But with the stock bloodbath already well underway, investors and asset managers are licking their chops at some valuations, if they have dry powder to deploy.

“The risk in the stock market is far lower today than it was six months ago just by virtue of the correction that we’ve seen. A lot of the excesses are being flushed out as we speak,” says Nicholas Galluccio, co-portfolio manager of the $57 million Teton Westwood SmallCap Equity fund. “We think it’s a perfect setup for possibly a strong 2023.”

Galluccio’s fund has outperformed the market, losing 13% so far this year after a 30% gain in 2021, to earn a 5-star rating on Morningstar. He’s been on offense this year adding to his positions in several small caps trading at low valuations, including Carmel, Indiana’s KAR Auction Services, which builds wholesale used car marketplaces and generated $2.3 billion in 2021 revenue.

Used car retailer Carvana bought its physical auction segment for $2.2 billion in February, larger than the market cap of the company at the time, though the proceeds were used to pay down debt. The acquisition prompted a 38% one-day pop in KAR’s stock, but it has given back most of those gains in the recent correction. The deal hasn’t been as kind to Carvana, which has lost 91% of its value this year.

“We got very lucky that Carvana we believe overpaid for their physical auction business for $2 billion, which is an enormous sum,” Galluccio says. “Now they’re strictly digital with a virtually debt-free balance sheet.”

Another of Galluccio’s picks is Texas-based Flowserve (FLS), which manufactures flow control equipment like pumps and valves. Many of its customers are petrochemical refiners and exploration and production companies in the energy industry. Most energy-linked businesses have had a strong year with the price of crude oil surging, though Flowserve has lagged with a 5% decline. Its bookings rose 15% in the first quarter to $1.1 billion, and Galluccio expects its margins to improve as it builds its backlog.

Value investors are also looking at oversold areas of the market for stocks trading at tiny multiples and now offering attractive dividend yields. John Buckingham, portfolio manager and editor of The Prudent Speculator newsletter, likes the Whirlpool Corp. (WHR), a century-old home appliance manufacturer headquartered in Benton Charter, Michigan. With home sales falling, Whirlpool has exposure to an anticipated recession, but its stock is down 34% this year, trading at six times earnings, with a dividend yield over 4% and an appetite for buying back shares. While not a small cap, at $8.7 billion in market capitalization, this mid-cap has long been a favorite of value investors.

“Lower home sales are certainly a headwind, but the market has already discounted something far worse than what we think will ultimately occur,” Buckingham says. “If we have a quote-unquote ‘mild recession,’ I think that many of the businesses have already been priced for a severe recession.”

Another consumer business Buckingham singles out from his portfolio: Foot Locker (FL). The shoe retailer is down 36% this year, including a 30% drop in one day on February 25 when it said its revenue from its biggest supplier Nike NKE +2.5% would decline this year as the apparel giant increasingly sells directly to customers. Now, Foot Locker trades at a tiny 3.5 times trailing earnings, with a 5.7% dividend yield to attract income investors.

While those value plays are cheap, Jim Oberweis, chief investment officer of small-cap growth firm Oberweis Asset Management, makes the case that growth stock valuations are even more attractive after taking the worst of the selloff so far. The Russell 2000 growth index is down 31% this year, and Oberweis’ small-cap opportunities fund has declined 22%. One outperformer is its top holding, Lantheus Holdings (LNTH), which has already more than doubled this year.

Lantheus makes nuclear imaging products that can be injected into patients and make body parts glow during medical scans to help diagnose diseases. It received FDA approval last year for a product called Pylarify which can identify prostate cancer, and fourth-quarter revenue rose 38%. The Massachusetts-based company trades at about 20 times expected 2022 earnings.

“It’s very hard to find a company at 20 times earnings with those growth numbers and those kinds of moats in terms of patents and defensible market positions that are very difficult for competitors to attack,” Oberweis says.

Oberweis boasts that Lantheus has no correlation to the broader economic environment and recessionary fears. Some of his other top holdings do have some inflation exposure but have already been deeply discounted this year and are trading at multiples more typical of value names. Axcelis Technologies (ACLS), which sells components to chipmakers like Intel INTC and TSMC to make semiconductors, grew its revenue by 40% in 2021 and another 53% in the first quarter of 2022, but has declined by 25% this year and trades at 15 times trailing earnings.

“Small growth stocks, which have been bludgeoned, I think have much better prospects to do well in an inflationary environment because many more innovative companies have pricing power, the ability to quickly raise prices and get the customers to actually pay them,” Oberweis says. “I don’t know if it’ll be this year or next year, but I think people buying right now are likely to earn significant positive returns because of the low valuations.”

I’m a reporter on Forbes’ money team covering investing trends and Wall Street’s difference-makers. I’ve reported on the world’s billionaires for Forbes’

Source: Five Oversold Small Cap Stocks And One Mid Cap For Bear Market Bargain Hunters

In trading on Tuesday, shares of the Vanguard Small-Cap ETF (Symbol: VB) entered into oversold territory, changing hands as low as $180.29 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.

In the case of Vanguard Small-Cap, the RSI reading has hit 29.8 — by comparison, the RSI reading for the S&P 500 is currently 33.6. A bullish investor could look at VB’s 29.8 reading as a sign that the recent heavy selling is in the process of exhausting itself, and begin to look for entry point opportunities on the buy side.

Looking at a chart of one year performance , VB’s low point in its 52 week range is $180.29 per share, with $241.06 as the 52 week high point — that compares with a last trade of $183.66. Vanguard Small-Cap shares are currently trading down about 0.5% on the day.

ACV Auctions (ACVA)

The company has been public for just under one year, having held its IPO on March 24 of last year. The initial offering saw ACV put more than 19 million shares on the market, at a price of $25 each, and the company raised $414 million in new capital. Since the IPO, however, ACV stock price has fallen by 63%.

Despite the fall in share price, ACV has been reporting solid year-over-year revenue gains. In the last quarter reported, 3Q21, the company showed $91.8 million at the top line, up 36% yoy. This included a 41% gain in Marketplace and Service revenue, which accounted for $78.3 million of the total.

Arbe Robotics (ARBE)

The company entered the public markets in October of last year, completing a SPAC combination at that time with Industrial Tech Acquisitions. The ARBE stock started trading on the NASDAQ on October 8, and the company realized $118 million in gross proceeds from the transaction. The stock quickly surged to a peak above $14 in November, and has since fallen 48% from that level.

Even though the stock has fallen, Arbe has had some solid wins to report in recent months. BAIC Group, a Chinese auto manufacturer, announced in November that Arbe’s radar systems are expected to be installed on BAIC Group’s new vehicles going forward, and that same month, Weifu, a Chinese tier-1 auto parts supplier launched a customer road-pilot phase of Arbe’s radar systems and chipsets. Weifu expects to have the systems in full production by the end of this year.

ALX Oncology Holdings (ALXO)

The company has had several recent updates on its evorpacept programs, and released the announcements in January. The updates include the expected initiation of a Phase 2/3 clinical trial for the treatment of great gastric/GEJ cancer. This trial will evaluate evorpacept in combination with several other therapeutic agents, including Herceptin (trastuzumab), Cyramza (ramucirumab) and paclitaxel.

Another upcoming catalyst announced in January concerns the Phase 1b trial of an evorpacept-azacitidine combo in the treatment of MDS, myelodysplastic syndromes. The company will be releasing the dose optimization readout of this trial during this year.

The final January update came from the FDA, which granted evorpacept its Orphan Drug Designation in the treatment of gastric cancer and gastroesophageal junction cancer. Orphan Drug Designation comes with financial benefits, including tax credits and user fee exemptions for the company….

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Investors Are Best Off Owning Stable-Growth Stocks Amid Recession Risks and Should Target These 3 Sectors, Says Goldman Stock Chief

Investors are better off turning their attention to stable-growth stocks as opposed to worrying about balance sheet strength, Goldman Sachs’ chief US equity strategist said. David Kostin told CNBC on Thursday that his take is against the grain of popular thinking, specifically that stocks with strong balance sheets typically fare better when heading toward a potential recession .

But that’s not the case anymore, because balance-sheet strength and higher growth have converged into some of the same stocks, which are now vulnerable to rate hikes from the Federal Reserve , he said. “A lot of the stronger balance sheet stocks are also a lot of the growth-ier stocks, and as the interest rate market has re-priced the idea of more Fed tightening over the last several months, growth stocks have done less well,” Kostin said.

That has made companies with slower or more stable growth profiles increasingly attractive to fund managers in the current environment, he added. The remarks came a day before new inflation data raised expectations that the Fed will remain aggressive with its tightening campaign — or even get more hawkish. The Labor Department reported Friday that consumer price growth in May jumped to a fresh 41-year high of 8.6%, accelerating from April’s 8.3% pace.

Prior to the report, the central bank was expected to raise benchmark rates another 50 basis points at its next two meetings, but some investors are now betting on 75 basis points. To find outperformance in the stock market, investors should look to better earnings growth, Kostin said, pointing to energy, healthcare and large-cap profitable tech stocks as three segments that could be used to build a portfolio.

In fact, energy has “some of the best growth in the market in terms of both sales and earnings — obviously commodity prices are up so much,” he added.

By:

Source: Stock Market Outlook: Build a Portfolio on These 3 Sectors, Kostin Says

Critics by: Matthew Frankel, CFP

While we all might love the idea of investing in risk-free stocks, there’s no such thing as a stock that’s 100% safe. Even the best companies can face unexpected trouble, and it’s common for even the most stable corporations to experience significant stock price volatility. We saw this during the early days of the COVID-19 pandemic, when many strong companies experienced dramatic drops in stock price. We see it in 2022, with rising interest rates, inflation, and international conflict.

Despite what you might read on social media, stocks that never go down don’t exist. If you want a completely safe investment with no chance you’ll lose money, Treasury securities or certificates of deposit may be your best bet.

That said, some stocks are significantly safer than others. If a company is in good financial shape, has pricing power over its rivals, and sells products that people buy even during deep recessions, it’s likely a relatively safe investment.

Seven safe stocks to buy

What is the safest investment you can make in the stock market? There’s no perfect answer to this, but we can identify some excellent companies with potential for little volatility and excellent returns. Here are seven safe Long-Term stocks that should deliver strong returns over time:

1. Berkshire Hathaway

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is a conglomerate that owns a collection of about 60 subsidiary businesses, including auto insurance giant GEICO, rail transport business BNSF, and battery manufacturer Duracell. Many (like these three) are non-cyclical businesses that generally do well in any economic climate.

Berkshire also owns a massive stock portfolio with large positions in Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), Coca-Cola (NYSE:KO), and many more. In a nutshell, owning Berkshire is like owning many different investments in a single stock. Most of the components were selected by CEO Warren Buffett, one of the greatest investors of all time. Because of the diversified nature of its business, Berkshire can be a great choice if you’re looking for safe stocks for beginners.

2. The Walt Disney Company

Most people know Disney (NYSE:DIS) for its theme parks, movie franchises, and characters, but there’s much more to this entertainment giant. Disney also owns a massive cruise line; the Pixar, Marvel, and Lucasfilm movie studios; the ABC and ESPN television networks; and the Hulu, ESPN+, and Disney+ streaming services.

Its theme parks have tremendous pricing power and do well in most economic climates. Disney’s movie franchises are among the most valuable in the world, and its streaming businesses are producing a large (and rapidly growing) stream of recurring revenue.

Disney was not immune to the COVID-19 pandemic, however. The company experienced major revenue declines in fiscal 2020 due to the temporary shuttering of Disney theme parks, Disney’s cruise line, and movie theaters.

Despite these challenges, Disney’s share price has been resilient on the strength of the Disney+ streaming business and the company’s renewed focus on its direct-to-consumer strategy. Those initiatives are driven by the power of Disney’s brand and the company’s valuable intellectual property. Those same qualities make Disney a safe investment over the long term.

3. Vanguard High-Dividend Yield ETF

Dividends are a good indicator of a company’s stability. What’s more, dividend-paying stocks tend to be more stable during tough times than those that don’t pay dividends.

The Vanguard High Dividend Yield ETF (NYSEMKT:VYM) is an exchange-traded fund that invests in a portfolio of stocks paying above-average dividends. Top holdings include Johnson & Johnson (NYSE:JNJ), JPMorgan Chase (NYSE:JPM), Home Depot (NYSE:HD), and Bank of America, but the fund invests in more than 400 stocks.

4. Procter & Gamble

Procter & Gamble (NYSE:PG) makes products people need in any economic environment. P&G is the parent company behind brands of household staples such as Pampers, Downy, Tide, Charmin, Gillette, Old Spice, and Febreze.

To give you an idea of how steady and consistent Procter & Gamble’s business has been over time, consider that the company has increased its dividend for 65 consecutive years. That’s one of the best dividend histories in the entire stock market.

5. Vanguard Real Estate Index Fund

Real estate is an example of an asset that tends to produce excellent long-term growth without too much risk. Real estate investment trusts, or REITs, allow investors to gain portfolio exposure to commercial properties such as office buildings, malls, and apartment buildings.

The Vanguard Real Estate Index Fund (NYSEMKT:VNQ) invests in a diverse variety of real estate stocks, pays an above-average dividend yield, and could be a low-risk but high-potential investment opportunity.lite1-2-1-1-1-1-1-1-1-1-1-1-1-1-1-2-1-2-1-2-1-1-1-1-1-1-1-1-1-1-1-2-1-1-2-1-1-1-1-1-1-1-1-1-1

In the early days of the pandemic, commercial real estate was one of the hardest-hit sectors. This is because many of the underlying properties REITs own are leased to businesses that depend on people being able and willing to physically go to work in their properties. But the long-term investment thesis is sound, and the safety of real estate is intact, especially when you’re investing in a diverse index fund like this one.

6. Starbucks

You’d be hard-pressed to find a brand with a bigger competitive advantage than Starbucks (NASDAQ:SBUX). Its trusted brand gives the company pricing power over rivals, and its massive scale gives it efficiency advantages, too. Starbucks can charge more money while benefiting from the cost advantages that come with being such a large company.

Starbucks continues to increase its footprint and its revenue year after year. It’s tough to imagine a world where Starbucks isn’t the go-to destination for higher-end coffee drinks. Even when the COVID-19 pandemic forced Starbucks to close its inside seating areas, consumers still flocked to Starbucks drive-thru lines to pick up their favorite beverages.

7. Apple

Apple (NASDAQ:AAPL) has the durable advantage of having both an extremely loyal customer base and an ecosystem of products designed to work best in conjunction with one another; iPhone and Mac users tend to remain iPhone and Mac users.

It’s no secret that Apple products cost significantly more than comparably equipped phones, computers, and tablets from rivals — a sign of Apple’s tremendous pricing power.

More contents:

Inflation Unexpectedly Spiked 8.6% In May Hitting 40-Year High As Gas Prices Surge Again

Consumer prices rose 8.6% in the 12 months ending in May, unexpectedly returning to record levels—and climbing at the quickest pace in four decades—amid an unprecedented surge in gas prices. Overall prices rose 1% from April—surpassing the 0.7% economists were expecting and much higher than the previous month’s increase of 0.3%, according to data released by the Labor Department on Friday.

The unexpected jump marks the largest 12-month increase since the period ending December 1981, according to the release, and comes after prices in April fell on a monthly basis for the first time since August. The overall increase was the result of broad upticks across shelter, food and gas prices, which jumped 4% after falling 6.1% in April, the government said.

“So much for the idea that inflation has peaked,” Bankrate Chief Financial Analyst Greg McBride said in emailed comments after the report, noting that increases were “nearly ubiquitous.” Core inflation, which excludes volatile food and energy prices, rose 0.6% in May against an expectation of 0.5%; shelter prices rose at the fastest pace in 31 years while food prices climbed at the largest rate in more than 41 years.

Stock futures immediately fell after the worse-than-expected report, with the S&P 500 reversing early gains and falling 1.6% below Thursday’s closing level in premarket trading. In another concerning sign, used car prices, which McBride says “had been the ray of hope for easing price pressures” after three straight months of declines, jumped 1.8% for the month of May.

Rising energy prices have elevated inflation readings during the pandemic to the highest level in decades, and stocks have struggled in recent months as Federal Reserve officials work to combat the surge by unwinding the central bank’s pandemic-era stimulus measures. After rising 27% in 2021, the benchmark S&P 500 has tumbled 16% this year.

Meanwhile, oil prices have surged more than 15% over the past month with demand expected to spike this summer—adding to supply concerns spurred by intensifying sanctions against Russia, one of the world’s top oil-producing countries. “Any hopes that the Fed can ease up on the pace of rate hikes after the June and July meetings now seem to be a long shot,” says McBride. “Inflation continues to rear its ugly head and hopes for improvement have been dashed again.”

Since Monday, the national average for a gallon of regular gasoline has increased by nine cents to $4.71. According to new data from the Energy Information Administration (EIA), total domestic gasoline stocks decreased by 700,000 bbl to 219 million bbl last week. Meanwhile, gasoline demand grew from 8.8 million b/d to 8.98 million b/d as drivers fueled up for Memorial Day weekend travel.

These supply and demand dynamics have contributed to rising pump prices. Coupled with volatile crude oil prices, pump prices will likely remain elevated as long as demand grows and supply remains tight. At the close of Wednesday’s formal trading session, WTI increased by 59 cents to settle at $115.26. Crude prices have increased amid supply concerns from the market as the European Union works to implement a 90 percent ban on Russian oil imports by the end of this year.

Crude prices were also boosted by increased demand expectations from the market after China lifted COVID-19 restrictions in Shanghai. Additionally, EIA reported that total domestic stocks decreased by 5.1 million bbl to 414.7 million bbl last week. As a result, the current storage level is approximately 13.5 percent lower than a year ago, contributing to rising crude prices.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business

Source: Inflation Unexpectedly Spiked 8.6% In May—Hitting 40-Year High As Gas Prices Surge Again

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