Stock and GDP Outlook, for Week Ending 05/06/2022
Look out below!
Now is a good time to invest in stocks if you like catching a falling knife. For everyone else, waiting until the mean expected NGDP growth path returns to 4% or less is perhaps wise.
As is evident above, the mean expected NGDP growth path fell significantly last week, and is now down to 4.42%. That means the S&P 500 has another 9.5% to fall before reaching the pre-pandemic trend of roughly 4%. Of course, it may fall further, if the Fed decides to take the path below trend for a while to make up for it having been above trend.
Year-to-date the S&P 500 is down 13.31%, representing a drope in the mean expected NGDP growth path of about 0.58%. So, the good news, we’re likely half way to the bottom. The bad news is that 5 year inflation expectations are still up 0.43% this year, despite having fallen 0.29% since March 25th. This means real growth expectations are down a bit more than 1% year-to-date. This is due primarily to the war in Ukraine and supply shocks related to the new China Omicron strain-related shutdown.
S&P 500 futures going out two years don’t offer much hope, indicating the S&P 500 is only expected to appreciate 4.21% over this horizon, which is obviously well below what one would expect with below-trend NGDP growth.
That said, I’m still confidence that the employment of general artificial intelligence technology will eventually increase productivity, much as mass electrification did. We’re still in the early days of such technology and I don’t have a time frame, but it si coming.
Note: This post, as is the case with all my posts, should not be construed as offering investment advice. Such advice should be tailored to the individual investor by qualified professionals who, ideally, are fiduciaries.
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