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As gas prices and inflation generally surge, we are hearing a lot of commentary from pundits — and often, the messages contradict one another.

For example, in the past few weeks, there has been a lot of attention to comments JP Morgan CEO Jamie Dimon made about a “hurricane” hitting the U.S. economy because of the Fed and the Ukraine war. Yet a few days later, JP Morgan Chief Economist Bruce Kasman commented on Bloomberg TV, “There’s no real reason to be worried about a recession, although there is some slowing in the picture.”

Kasman continued, “What we have here is a powerful tension between drags that are not going away and a very resilient private sector, with the health of both households and corporates being quite remarkable right now. We don’t see a near-term recession. We see a global economy which actually does OK in the second half of the year, with the U.S. slowing and the rest of the world doing somewhat better.”

So we have two vastly different opinions from the top brass at JP Morgan. Whose assessment is correct? I don’t know, but what’s more important is what the impact of economic shifts may have on you.

Strong Data Point to a Strong Economy

To make good decisions, we need good information. Politicians are motivated to generate votes and the media to bring in viewers. While we believe there could be a recession, the real question is, “Does it matter?” Probably not. Moreover, the economic facts – not the media hype – suggest that the economy remains strong.

The employment report for May confirmed that the U.S. economy continues to grow. Both major measures of jobs went up in May: nonfarm payrolls rose 390,000, while civilian employment increased 321,000. Total average hourly earnings expanded 0.3 percent.

How the jobs numbers look really depends on the sector you are looking at. Jobs in leisure & hospitality increased 84,000, the seventeenth consecutive monthly gain. Yet in retail, payrolls dropped 61,000 in May. With the exception of the initial onset of COVID-related lockdowns in 2020, that’s the steepest drop for any month since 2009.

Politicians want to take credit for good news and blame others for bad news — Putin, Ukraine, supply chain etc. As usual, some politicians are now trying to take credit for the job growth.

President Biden says he’s created about 600,000 “new” manufacturing jobs since he took office, for example. It’s true — that is (nearly) how much manufacturing jobs have increased since January 2021, but total manufacturing jobs are still 17,000 below the pre-COVID peak. The economy is still climbing out of the COVID lockdown hole. That means jobs will grow in 2022, in spite of the Fed raising rates and in spite of what the government does.

Even with increased interest rates, consumer cash flow and balance sheets remain strong. The financial obligations ratio finished 2021 at 14.0 percent. That’s the share of consumers’ after-tax income they need to use on debt obligations (like mortgage payments and car loans), as well as recurring payments such as property taxes, homeowners’ insurance and car lease payments.

To put that in perspective, from 1980 (when the Federal Reserve began tracking data) to the end of 2019, the ratio was never lower than 14.7 percent.

Meanwhile, by the end of 2021, household net worth had increased elevenfold over the past 70 years, after adjusting for inflation. Americans had $1.2 trillion in checkable deposits and currency before COVID. At year end 2021, they had $4.1 trillion. While many are being impacted by inflation, overall people are in some of the best financial shape they have been in 30 years.

Visit Your Local Restaurant for a Good View of the Economy

Looking beyond all the technical data, I believe one of the easiest ways to judge how the economy is doing is to go to your favorite restaurant on a Friday or Saturday and see how busy it is.

Loose money from the Federal Reserve, combined with massive spending by the government, has inflated everything. Limiting domestic oil production has exacerbated the inflation issue.

Even so, the economy remains strong overall. As prices continue to rise and people reduce spending, we believe inflation will slow.

For investors, the bigger question is not what the economy or markets are going to do, but rather, how they will impact your ability to maintain and enhance your lifestyle. I am not suggesting that people do anything different now; I just want to stress that some of the dire predictions we are hearing are based on politics, not fact.

At some point, we will see Jamie’s Dimon’s hurricane, but right now it seems like a tropical storm at best.

Stay the Course

Our recommended strategy has not changed — keep cash on hand for near-term needs, and work with your advisor team to help ensure your portfolio generates income to help offset short- term volatility. We believe in proactively monitoring and rebalancing to take advantage of market, tax and economic conditions. Please reach out to us with any questions or if we can otherwise be of service. Your vision is our priority, and your success is our passion.

For more information about our process and team, visit www.carverfinancialervices.com, or feel free to contact me personally at randy.carver@raymondjames.com.

Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Investing involves risk and you may incur a profit or a loss regardless of strategy selected. No investment strategy, including asset allocation or diversification can guarantee your objectives will be met. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

If you drive past a police speed trap, you will probably slow down —not just at that moment, but also while in the near future. You will anticipate additional speed traps. That’s because of a phenomenon called recency bias, which causes us to believe recent events will dictate how the future will play out.

This concept also applies to the way we look at portfolios and markets. Because 2021 was a strong year, we tend to forget all of the corrections that have happened in the past 10 years. We focus more on recent occurrences than on those in the past.

Each time there is a market correction, it feels like this time is different and almost like the world is ending. But the world keeps on turning, and, although the causes of various market corrections can differ, their characteristics and outcomes are similar. The following chart details S&P 500 corrections of more than 5 percent since March 2009.

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As you can see, there is a myriad of reasons for past market dips, and the recent volatility is nothing new.

“Are we there yet?” That’s the question many investors keep asking while wondering if a bottom is near or if there’s more downside ahead. Here is the quick answer: nobody can answer that because markets are driven by perception in the short run. The reality is, we have had 24 corrections since 2009 and have always reached a new high. Overall corporate earnings remain strong, and although we are experiencing a lot of inflation and rising interest rates, the longer-term corporate outlook remains good.

The broader question is, does it matter? The value of a portfolio, market or index is less important than being able to meet your needs and wants today and tomorrow. While it can be worrying to see values decrease, often that provides an opportunity for tax swaps and rebalancing. 

As markets become more volatile, media reporting becomes more dire, inflation rises, tax laws become more complex, and the volume of information we are exposed to increases, we are here for you. We will reach out directly for anything specific to your situation and continue to send you general information. We also continue to host events to inform, educate and inspire. Our online resources are updated with our latest thoughts and information.

We continue to monitor our clients’ portfolios and planning and proactively make updates that are consistent with your needs and objectives. We will be in touch for your regular planning meeting. As always, please reach out to us with questions or concerns. We are here for you. Your vision is our priority, and your success is our passion.

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs.

Also, because the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.