Market update: How can investors navigate the current state of the economy?

U.S. GDP shrank by 0.9% in the second quarter after falling 1.6% in the previous quarter — marking two consecutive declines. By technical definition, the economy is officially in a recession.

Reports point to a deteriorating economy

The latest GDP report shows services spending grew 4.1% while goods spending fell 4.4% — as well as declining business investment, government spending and housing. Recession or not, it’s clear the economy is slowing.

What’s the job market saying? The unemployment rate has stayed firm at 3.6%, but that could be changing:

• Data: Another Thursday report showed jobless claims rising in recent months — sitting near their November 2021 levels.
• Forecast: Per Bloomberg, if the rate of layoffs persists, unemployment could reach recessionary levels by January.

But the job market has been so tight that Bloomberg U.S. Economist Eliza Winger thinks the current job market can “absorb laid-off workers.”

Getting worse before it gets better…

On Wednesday, Fed Chair Jerome Powell said, “we think it’s necessary to have growth slow down” to “create some slack so that the supply side can catch up.”

The Fed is expected to continue raising rates until inflation falls or the economy enters a recession — but Powell said he doesn’t believe we’re in a recession.

The data is all over the place. Visa reported earnings this week and saw “no evidence of a pullback in consumer spending,” but it’s hard to draw conclusions.

• Increased credit card usage could result from higher prices or more consumers being forced into debt.
• “Debt can be either a sign of confidence or struggle,” per LendingTree Chief Credit Analyst (CNBC).

Investors: Navigating the market

In June, Barry Ritholtz wrote a post titled “Too Late to Sell, Too Early to Buy…” Not much has changed since then, except there’s more evidence of us entering a recession. So how can investors navigate the market?

One option: Ignore short-term movements altogether. Per famous investor Howard Marks’ latest investment memo:

• “We really shouldn’t care about the short term – after all, we’re investors, not traders.”
• If we have short-term opinions, “most investors can’t and won’t meaningfully revamp their portfolios based on such opinions.”

One tactic: Dollar-cost averaging — i.e., investing equal amounts over fixed periods of time, no matter what’s happening in the market.