Over that past year, the US consumer has far outperformed Wall Street in successfully forecasting both the economy and the stock market.
Which doesn’t say much about the capabilities of the Wall Street ivory tower set.
I have constantly warned, Wall Street economists are no match for medium and small business managers out there in the real world on Main Street. The reason is straightforward. Business managers are seeing in real time what economic data series will only begin to pick up 1-3 months from now.
The US Consumer of late seems to only ever be in one of two mindsets. Either overly enthusiastic or quite depressed. This is a natural outcome of the extreme volatility and behind the curve missing every cycle activity Federal Reserve.
The Fed, like the RBA, has been aggressively driving a rollercoaster economic outcome.
The US consumer has rarely in history been as depressed as they are today. While some headlines spoke of a bounce in Consumer sentiment for the month on Friday, the University of Michigan Sentiment Index rose to 59.1in December, it is a dismal state of affairs continuing to languish at all-time historic lows.
Plumbing levels even worse than during the GFC or Covid. This is how bad the situation remains.
All the time, Consumer sentiment has been collapsing, and Wall Street economists and their ilk around the world have been talking the US economy up. This is why we now have a sudden flood of major banks like Goldman Sachs and Bank America playing very late catch-up to the reality of a looming deep recession. Just as we have been warning for a full year now.
It is not rocket science, to work out that if the US consumer is depressed, then the economy will continue to stall.
When you have a blinkered Federal Reserve aggressively raising rates for the foreseeable future, and make no mistake, 50-point hikes are aggressive, then the economy on Main Street, which is the ultimate bedrock driver of Wall Street, remains in serious trouble way ahead of us and over the horizon.
This year, for 2022, we expected a US recession and a 20% fall in the stock market. No one believed us last December. We were right. Interestingly, the big global banks are now joining our view this December. Though they are shying away from the full impact on the stock market that I continue to forecast.
Though the macro-fundamental view of the big banks is joining our well-established view now, it is still not at all fully pricing in the inevitable further impact on the US stock market.
This is why, I still see further significant downward market risk through December, and perhaps all of 2023.
The economic data continues to paint a picture of a slowing US and global economy, which transpires into a clear and present potential for stocks to again collapse a further 20%.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
