The Worst Earnings Recession Since 2008 Could Hit Stocks Next Year, Stocks are Vastly Overpriced
Totally agree.
I talked about the 3 signs of a coming earnings recession here:https://t.co/PM3J75GJk4
— Mosaic Asset (@MosaicAssetCo) December 21, 2022
Recession probability model from @NewYorkFed has climbed beyond its 2020 peak (by narrow margin) and is now at its highest since GFC pic.twitter.com/rHcl3dO19A
— Liz Ann Sonders (@LizAnnSonders) December 21, 2022
Housing market is collapsing. Year-over-year, sales fell by 35%, the 16th month in a row of year-over-year declines. Compared to the recent free-money peak in October 2020, sales were down 39%
Economists Place 70% Chance for US Recession in 2023
(Bloomberg) — Economists say there is a 7-in-10 likelihood that the US economy will sink into a recession next year, slashing demand forecasts and trimming inflation projections in the wake of massive interest-rate hikes by the Federal Reserve.
The probability of a downturn in 2023 climbed from 65% odds in November and is more than double what it was six months ago, according to the latest Bloomberg monthly survey of economists. The poll was conducted Dec. 12-16, with 38 economists responding about the chance of a recession.
The median estimates see gross domestic product averaging a paltry 0.3% next year, including an annualized 0.7% decline in the second quarter and flat readings in the first and third quarters. Consumer spending, which accounts for about two-thirds of GDP, is projected to barely grow in the middle half of the year.
“The US economy is facing big headwinds from surging interest rates, high inflation, the end of fiscal stimulus, and weak export markets abroad,” said Bill Adams, chief economist at Comerica Bank. “Businesses have turned cautious about adding to inventories and hiring, and will likely delay construction and other capex plans with credit more expensive and order books shrinking.”
Inflation as measured by the Fed’s preferred gauges — the personal consumption expenditures prices index and the index that strips out volatile food and energy components — is seen softening but still running well above the central bank’s 2% goal.
That explains why Fed Chair Jerome Powell signaled last week, after the central bank raised its benchmark interest rate to the highest level since 2007, more tightening is in store for early next year. Powell also made clear that the Fed isn’t considering cutting rates in 2023. This year, the Fed raised rates by 4.25 percentage points, including four 75 basis-point hikes.
A key reason the Fed is likely to keep higher rates in place for an extended period is the resiliency of the job market. As the economy weakens, however, employment is seen succumbing. Economists expect payrolls to decline in the second and third quarters, and by the first quarter of 2024 the jobless rate is expected to peak at an average 4.9%.
And after firmer growth in the first half of the year, average hourly earnings are forecast to cool.
As high inflation and borrowing costs deal a blow to household finances, businesses are also seen pulling back. Economists project bigger declines in private investment, which include spending on equipment and structures, in the first three quarters of 2023 than they did a month ago. Those outlays are seen falling 3% on average.
Less investment, weak household spending and a global economy on the brink of a recession will hit the nation’s manufacturers particularly hard. The Bloomberg survey shows economists downgraded their estimates of industrial production for every quarter next year. Output is now seen averaging a 0.7% decline in 2023, much weaker than the 0.2% increase that was projected in November.
Home sales tumbled more than 7% in November, the 10th straight month of declines
– Home sales declined 7.7% on a monthly basis in November.
– Sales were down 35.4% year over year, marking the tenth straight month of declines.
– The median sales price rose 3.5% to $370,700 from a year ago.
Sales of existing homes fell 7.7% in November compared with October, according to the National Association of Realtors.
The seasonally adjusted annualized pace was 4.09 million units. That is weaker than the 4.17 million units housing analysts had predicted, and it was a much deeper fall than usual monthly declines.
These counts are based on closings, so the contracts were likely signed in September and October, when mortgage rates last peaked before coming down slightly last month. Rates are now about one percentage point lower than they were at the end of October, but still a little more than twice what they were at the start of this year.
“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the Covid-19 economic lockdowns in 2020,” said Lawrence Yun, NAR’s chief economist. “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”
At the end of November there were 1.14 million homes for sale, which is an increase of 2.7% from November of last year, but at the current sales pace it represents a still-low 3.3 month supply.
Low supply kept prices higher than a year ago, up 3.5% to a median sale price of $370,700, but those annual gains are shrinking fast, well off the double digit gains seen earlier this year. It is still the highest November price the Realtors have ever recorded, and, at 129 straight months, it is the longest running streak of year-over-year price gains since the realtors began tracking this in 1968. Roughly 23% of homes sold above list price, due to tight supply.
“We have seen home prices come down from their summer peaks over the past five months. At the same time, we have also seen rent growth retreat for 10 consecutive months,” wrote George Ratiu, senior economist at Realtor.com in a release. “However, the cost of real estate remains challenging for many households looking for a place to call home, especially as high inflation and still-elevated interest rates have been eroding purchasing power.”
Sales decreased in all regions but fell hardest in the West, where prices are the highest, down nearly 46% from a year ago.
Homes sat on the market longer in November, an average 24 days, up from 21 days in October and 18 days in November 2021. Despite the slower market, 61% of homes went under contract in less than a month.
With prices still high and mortgage rates hitting a cyclical peak, first-time buyers remained on the sidelines. They were responsible for 28% of sales in November, which was unchanged from October, and up slightly from 26% in November 2021. Historically first-time buyers make up about 40% of the market. A separate survey from the Realtors put the annual share at 26%, the lowest since they began tracking.
Sales fell across all price categories, but took the steepest dive in the luxury million-dollar-plus category, dropping 41% year-over-year. That sector had seen the biggest gain in the first years of the pandemic.
Mortgage rates have come off their recent highs, but it remains to be seen if it will be enough to offset higher prices.
“The market may be thawing since mortgage rates have fallen for five straight weeks,” Yun added. “The average monthly mortgage payment is now almost $200 less than it was several weeks ago when interest rates reached their peak for this year.”
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Resources:
https://www.investmentwatchblog.com/the-worst-earnings-recession-since-2008-could-hit-stocks-next-year-housing-market-is-collapsing/
https://finance.yahoo.com/news/economists-place-70-chance-us-110000504.html
https://www.cnbc.com/2022/12/21/home-sales-tumbled-november.html