Watch Out America: A Recession is Coming

Last week, the BLS reported January inflationary data which is bad news for stock markets. CPI (consumer price) and PPI (producer price) both increased. This undermines the Federal Reserve’s claim that it has inflation under control.

The market’s mostly muted reaction suggests that it neither cares about the economy nor worries about the Fed rate policy.

High interest rates tighten credit and slow the economy. Automotive stocks like General Motors (GM) and Ford (F) both managed to post respectable quarterly results. However, credit restrictions increase the cost of borrowing. This dissuades consumers from buying expensive things. In the near term, used car firms like Carvana (CVNA) and Carmax (KMX) are not cutting prices. This will preserve its profit margins. Yet as consumers balk at the prices, both firms will need to sell their auto inventory, which is sitting unsold on lots.

The tight monetary policy lifted U.S. Treasury yields in the last week. It is anticipating tight lending conditions ahead. Just as Japan reported an unexpected recession, the U.S. may do so, too. Contrarian investors may rely on the vast majority of economists wrongly predicting a recession in 2023.

Should the term “recession” flood headlines, it would hurt consumer confidence. They will spend even less at grocery stores and restaurants. Firms like McDonald’s (MCD), Starbucks (SBUX), Chipotle (CMG), and DooarDash (DASH) would face a dramatic slowdown next.

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