Wall Street in July 2022- the craziest street of all?

Drawing I did in 2019, that keeps getting more prescient.  #sharpiescribblestyle

Disclaimer

 This post is to explain why I think the financial markets will tank more in the middle of July.  To start with, let me remind everyone that I think we're about 33 months into what will feel like a great depression, by 2027, to most people.  It might even fit the official definition of a great depression.  I call this The Phoenix Great Depression.  I think there will be a death and rebirth in so many industries, that the word phoenix describes this economic downturn well.  

In my opinion, we are now going into the 2nd, and worst, "recessionary wave" of this long financial mess.  Yes, I realize all of this is arguable.  Again, this is my opinion, just like I said in this blog post and this blog post, both from October 2019.  I used the word "recession" in both of these, because at the time the conventional wisdom was that there might be a minor recession in late 2020.  Maybe.  Conventional wisdom was wrong.  But so was I, to a point.  I didn't expect The Fed to pull $5 to $6 trillion in new money out of their ass in 2020-2021.  That inflated and warped the financial/asset markets dramtically.  So the timeline for things I epexcted, and expect to happen, got moved later.  

My calls for this year, 2022, in the stock markets were in this blog post (March 22, 2022).  I called for continuing high inflation, and rising interest rates, over most of 2022.  I also said the stock market indices would drop below these numbers in 2022:

Dow Jones Industrial Average- 27,000

Nasdaq- 10,000

S&P 500- 3,500

The averages at the time of that March 22, 2022 blog post were approximately: DIJA- 34,861, Nasdaq- 14,169, and the S&P 500- 4,543.  As I predicted, the markets have moved much lower since, and we're only halfway through 2022.  The markets closed yesterday (7/1/2022) at: DIJA-31,097, Nasdaq-11,127, S&P 500- 3,825  Those numbers were off the recent lows.  The Dow has been below 30,000, the Nasdaq below 11,000, and the S&P has hit 3,666.  I don't think we've seen the bottom yet. 

Here's why.  Everything is about The Fed's (the Federal Reserve) actions at this point.  The inflation number that came out in June (May 2022 numbers) had inflation (CPI) at 8.6% annually.  The Fed's goal is about 2% annually.  Uh, yeah, it's a bit high, as your last tank of gas proved to all of you.  To stamp down inflation, The Fed has to raise interest rates, which, in theory, will slow down the economy, as consumers and businesses back off, and spend less money.  BUT... The Fed's actions usually take 12-18 months to really take full effect.  They raised interest rates by 3/4% (aka .75% or 75 basis points) in June, the biggest rate hike in decades.  They did that because the June CPI was so high, at 8.6%, and that it was higher than the May number, 8.3%.

OK hang with me here.  That high, 8.6% inflation rate was the MAY 2022 numbers, the official CPI inflation numbers released are up through the previous month.  It takes a while to collect data and figure it all out.  

On July 13th, the next CPI number comes out, the June 2022 data numbers.  So the CPI was figured almost the same time The Fed raised interest rates.  Inflation seems to still be rising, in general.  So the number coming out on July 13th, which The Fed and every stock trader will be looking at excrutiatingly close, will almost certainly be between 8% and 9%.  It could very likely be over 8.6%.  Nobody wants that.  The Fed has already said it plans to raise interest rates again, 1/2% to 3/4% at the July meeting, held July 26-27.  If the inflation number is even close to 8.6%, they will most likely opt for another 3/4% (.75% or 75 bssis points) hike.  That's like hitting the e-brake on an already slowing economy.  

Here's the really bad part.  The stock markets FREAKED when The Fed raised rates 3/4% in June, since a 1/2% hike was expected.  Since then, the traders have decided that they over-reacted, and the markets have risen back up some.  If the inflation (CPI) rate is still high, or higher (near 8.6% or more annually) on July 13th, the markets will FREAK even more, causing another big drop in stocks (and possibly in crypto, too, and a further decline in real estate, due to another big jump in mortgage rates).  

So that's my thinking.  Again, this is not financial advice, (see my disclaimer for this blog, linked above), these are my thoughts as a futurist/Big Picture/economics geek.  These ideas are for your education and entertainment.  Do your own research and due diligence before making any financial/investment decisions.  

My hope is that my thinking may cause you to do more research, and make better decisions for yourself, your family, and your busniess, in these crazy economic times.  

Blogger's note- 7/13/2022- 

I was right about the inflation rate not dropping much.  The CPI inflation rate today, July 13th, came in at 9.1%, year over year.  That's a full 1/2% higher than last month's number.  As for the stock market, The Dow was down over 400 points at one time today.  That qualifies as "tanked."  But the three main indices have been bouncing up and down all day.  The Dow is down 167 points, as I began to write this, and the Nasdaq is down about 11 points, 20 minutes before market close.  The higher than expected inflation number makes a .75% interest rate increase much more likely at the Fed (FOMC) meeting later this month, July 26-27.  The Dow is down about 300 points, from the close the day before I wrote this blog post, and the Nasdaq is up about 130 points from the close the day before, 11 days ago.

Bloggers note- 7/14/2022- The next morning...  I told you so.