Why it’s not the right time to buy U.S. stocks… so when is it?

Last week, a WSJ economist survey showed the odds of a recession in the next 12 months at 44% — up from 28% in their April survey.

The WSJ data point rarely reaches these levels except in an actual recession. In December 2007, economists had a 38% chance of the economy going into a recession.

Not everyone is convinced…

A recession is defined as a two consecutive quarters of declining growth. In the first quarter of 2022, the US GDP shrank 1.5%. In the second quarter, the GDPNow tracker expects zero growth — lowered from 0.9% in recent weeks.

Weiss Multi-Strategy Advisers President Jordi Visser thinks “inflation has peaked, but people haven’t identified it yet as peaking.” (Institutional Investor)

• Per Visser, the market narrative in the first half of 2022 centered on new information including Russia’s invasion, increasingly aggressive Fed hikes and China COVID lockdowns.
• He believes the second half of 2022 will be a “completely new story” and investors will have a tough decision to make on positioning portfolios.

Shark Tank’s Kevin O’Leary isn’t seeing evidence in the numbers of his private businesses (CNBC). He’s expecting a slowdown eventually but not a “massive recession” and thinks those positioning for one could be “missing returns.”

Why it’s not time to buy yet…

BlackRock isn’t buying the dip yet per their weekly market commentary and here’s why:

• Earnings: BlackRock thinks S&P 500 earnings expectations are still too high with room to fall.
• Valuations: Despite how much stocks have fallen, BlackRock doesn’t think they’re cheap enough to account for lower earnings.
• Fed: They also see a risk that the Fed tightens too much — which markets are worried will send the economy into a recession.

Ritholtz Wealth Management’s Barry Ritholtz thinks we’re in the “too late to sell, too early to buy” stage of the market.

Investors: When is the right time?

Some are looking for further pain in the market and the Fed changing stance before jumping in:

• BlackRock is looking for one signal to turn positive on stocks again — a scenario where the “Fed explicitly acknowledges the high costs to growth and jobs if it raises rates too high.”
• Look for capitulation — when markets go into widespread panic and selling mode — seen as a sign to find value in the markets again. Are we there? Not yet — according to True Insights’s Joreon Blokland.

Blokland pointed out last week’s near 4% single-day S&P 500 drop was only the 39th worst one-day drop since 2005 (FT). Things can always get worse.