The recent stock market rally seems to contradict predictions of an imminent economic slowdown. This illustrates the principle that sentiment follows price, not vice versa.

Just a couple of weeks ago, many were anticipating an economic downturn by year-end. Even my A.I. Timing Webs model had me at over 40% cash at the beginning of the week of August 5, but by week's end, this had decreased to around 10%.

As I analyze the markets entering the final week of August, I continue to see signs that this bull market may have significant potential for growth. This perspective is based on the idea that we experienced a recession in 2022. 

Let me explain...
 

Why Was 2020 a Recession if 2022 Wasn’t?

Recently, I've heard many market commentators claim, "We haven't had a recession since 2020." It's unclear whether these individuals are misinformed or intentionally promoting a specific narrative.

This past week, the Bureau of Labor Statistics revealed that over 800,000 jobs reportedly created in the past year never actually materialized. This discrepancy far exceeds a normal statistical margin of error and could be considered misleading.

This is one reason why I find it unproductive to fixate on economic data. In my view, price and time are the only truly significant factors in market analysis.

But since we’re here, have a look at this table showing quarterly GDP data between 2019 and 2022.

The traditional definition of a recession was two consecutive quarters of negative GDP. While there's general agreement that the economy was in recession during the 2020 COVID-19 lockdowns, in 2022, this definition seemed to be set aside to suit a particular narrative.

It's worth noting that the yield curve inverted in 2022. Typically, there's a lag between a yield curve inversion and the onset of a recession. However, I propose that 2022 was essentially a "double dip" recession following 2020. The significant inflationary pressures that year undoubtedly altered consumer behavior.

If this view is correct, we're only two years removed from the last recession. Historical patterns suggest it's unlikely we'll see a third recession within a four or five-year span, even if one occurs in early 2025. While possible, such a scenario isn't supported by historical trends.

With Federal Reserve rate cuts potentially on the horizon, I believe this stock market rally could be in its early stages. Rather than focusing on recession risks, we should be alert to the possibility of inflation resurging as we approach 2025.

I'll continue to monitor these developments closely and keep you updated on any significant changes or insights.

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