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Finance

How Is The Economy Doing Right Now In 2022?

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Key Takeaways

  • The stock market performed incredibly well in 2020 and 2021, despite a challenging economic backdrop
  • There’s no real consensus on whether a recession is likely over the next 12 months, with economists and CEOs holding various differing opinions
  • Regardless of the state of the economy over the next 12 months, there are some investments that will outperform, and some that will underperform
  • As an investor, there are actions you can take to manage this risk

A common investing misconception is that the state of the stock market always reflects the state of the economy. Over the long term, this tends to be true, but over shorter periods, the two can become pretty disconnected.

The last couple of years have provided a perfect example of this. There’s no denying that the Covid-19 pandemic has had a massive impact on various sectors of the economy. Companies went under, people lost their jobs and entire industries were shut down for months.

Despite this, the stock market went on a tear. The S&P 500 handed investors an 18.40% return in 2020 and followed this up with 28.71% in 2021. While it’s no surprise that the lockdowns were good news for companies like Amazon, Google and Disney, it’s pretty hard to argue that the economy was steaming along throughout those two years.

The stats also back this up. In 2020, GDP (economic growth) in the U.S. was -3.40%, including the worst quarter of economic growth experienced since 1948 at a staggering -9.10% annualized. The year 2021 saw a turnaround on these figures, but this was coming off the low base of the year before.

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So we’ve established that the economy and stock market don’t always march in step in the short term. Given that the stock market is choppy now, does that mean the economy is, too?

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How are Americans feeling about the economy?

According to a recent poll from the Wall Street Journal, not good. With inflation being the overriding factor, over 80% of surveyed consumers described the economy as “poor” or “not so good.” In a more personal take, over 35% stated that they felt unsatisfied with their own financial situation.

This is a trend that is going in the wrong direction. A CBS News Poll has been tracking Americans’ views on the economy over the past 12 months. There, 69% of respondents stated that the current state of the economy is bad, compared to 46% in April 2021.

It’s not difficult to see why. The cost of living is going up significantly, supply chain issues are still causing massive problems and, despite low levels of unemployment, wages aren’t keeping up.

Does all the pessimism reflect reality?

Yes and no. The economy is a real mix right now. The labor market is very tight in certain industries, with some workers able to command significant pay rises and favorable benefits and conditions.

In others, conditions are worse than ever, with greater workloads being handed to employees by companies struggling to recruit. This issue tends to be in industries with lower-paid workers, where labor shortages are becoming increasingly common.

We’re seeing a similar situation at a company level. It’s no secret that the U.S. tech industry is suffering, with some huge falls seen in the stock price of companies like Netflix, Meta and Google in 2022. Other sectors of the economy are reaping the benefits of the misfiring system, with energy producers like Chevron and ExxonMobil, in particular, soaring off the back of record-high oil prices.

So there is good news and bad news depending on who you are and what you do, but what do the numbers say? Again, it’s a mixed bag. They’re not great, but they’re not terrible yet either.

The first quarter of 2022 saw GDP fall for the first time since 2020, contracting by 1.51% on an annualized basis. A big chunk of this was due to how imports and exports are factored into GDP, and consumer spending actually grew by 2.7% on a real basis (adjusting for the impact of inflation).

For those in a healthy financial position, increased spending is likely to be eating into other financial commitments such as savings and paying down debt. While the effects of this might not be immediate, they’ll be felt eventually.

The U.S. Census Bureau’s most recent Household Pulse Survey has also found a 32% increase in people relying on loans and credit cards to meet their regular expenses and a 34% increase in those who have had to borrow money from family and friends.

However, with unemployment so low, companies have fewer workers available to fill their vacant positions. The available workers can afford to be more choosy. Usually, this type of supply-and-demand dynamic would mean wages would rise, taking the pressure off households.

A recession isn’t guaranteed

A recession has traditionally been defined as two consecutive quarters of negative economic growth. However, there is a more complicated definition used these days. It’s now up to the National Bureau of Economic Research to call when a recession has started. However, broadly speaking, two consecutive quarters of negative growth still indicate that things aren’t great.

Despite all the pessimism and negativity around, we’re not necessarily going to fall into a recession. Some sectors of the economy are performing well, and the low unemployment rate means that most people still have money in their pockets to spend.

The situation is further complicated by the Fed needing to walk a tightrope with interest rates, given soaring inflation. They may need to continue to raise rates to keep inflation in check, but this makes debt for individuals and businesses more expensive. Mortgage rates, for instance, are tied to overall debt yields.

There have also been strong words on the subject from the executives of some of the world’s biggest companies. Jamie Dimon, the chief executive of JPMorgan Chase, stated in a recent interview that a “hurricane” is coming our way and that “you better brace yourself.”

Another CEO who always has something to say, Elon Musk, has stated that he has a “super bad feeling” about the economy, announcing that Tesla would be laying off 10% of its workforce.

Others aren’t so sure, with a recent Bloomberg survey of 37 economists putting the probability of a recession over the next 12 months at 30%. That figure is growing slightly, but it’s a sign that an upcoming recession is far from certain.

All in all, it’s a tough time for investors because we’re getting some real mixed signals out there.

Investments that could win in a recession

At Q.ai, we’re not necessarily convinced by all the doom and gloom, but nevertheless, as investors, it’s essential to be prepared for any potential outcome.

There are always companies that are impacted more heavily when times are tough. The main factor to consider is whether a company’s revenue will be affected by falling consumer spending. When household budgets are tight, luxuries get put on hold, and we tend to make do with the items we already have.

Automakers and electronics manufacturers, for example, might see reduced demand for their products. With less cash for vacations, the travel and leisure sector, such as airlines, might be under pressure.

On the other end of the spectrum, companies that provide goods and services that we can’t go without can actually perform pretty well during a recession. Energy providers, discount retail, healthcare providers and supermarket chains are examples of businesses that fall into this category.

Suppose you’re feeling more optimistic about the outlook for the stock market but want to hedge your bets. In that case, there are actions you can take if you don’t want to try to pick individual stocks.

Investors would be wise to check out Q.ai’s recently released Large Cap Kit.This Kit takes a long-short approach to help investors benefit from the expected divergence between large-cap stocks and small-cap stocks. With this Kit, what’s important is not what happens to the economy but, rather, how large- and small-cap companies move in relation to each other. This way, investors can benefit from the difference in relative value, so long as small-cap companies continue to underperform, as they tend to do in these environments.

On the other hand, because the biggest companies tend to hold up pretty well during a recession, sticking to large-cap investments like the ones we hold in our Smarter Beta Investment Kit can be a good option, too.

There are also opportunities to consider outside of the stock market. Precious metals such as gold have long been considered ‘safe haven’ assets, which can be attractive to investors during times of high inflation or market volatility. At Q.ai, we’ve even created Precious Metals Investment Kit to take advantage of this with exposure to metals like gold, silver and platinum.

Lastly, if you just want to put in place some additional safeguards to protect your long-term strategy, we offer Portfolio Protection for our Foundation Investment Kits. For this, we apply hedging strategies to help mitigate losses in your investments from various risk factors.

Download Q.ai for iOS for more investing content and access to over a dozen AI-powered investment strategies. Start with just $100 and never pay fees or commissions.

Finance

Medifast Still A Growth Stock But Now Value Priced

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Medifast is a growth company that is sporting some attractive value-stock metrics after its shares have fallen to a level that is “simply ridiculous” when measured against its prospects, according to Taesik Yoon, who edits the Forbes Special Situation Survey and Forbes Investor newsletters. The diet business’s equity has suffered with growth shares in general as elevated inflation and aggressive Federal Reserve monetary policy to combat it have caused investors to rethink stocks that benefit from an expanding economy.

A slide of roughly 40% in the past year undervalues a growth story that is taking a hit now but remains intact over the longer term, says Yoon, making the stock a bargain. Yet despite also having a fantastic balance sheet with more than twice as much cash on hand than total debt and paying a very generous dividend that is now yielding almost 5%, Yoon says, Medifast’s stock currently trades at less than 12 times its earnings expectations for the year versus a five-year average of 19.4. That might make sense if you expected the current earnings swoon to persist, but Yoon thinks the secular trend toward healthier living and the company’s coach-based business model will have its earnings back on the rise soon, outpacing the market.

Medifast combines an extensive menu of proprietary nutritional products to help with diet goals and a network of almost 64,000 independent coaches. Most of these are former customers who achieved their weight-reduction goals and are compensated from the sales of company products to their clients. Medifast delivers its food regimens to customers, which aided revenue during the pandemic lockdowns and helped earnings growth accelerate by an average 53% over the past two calendar years. That drove its shares to a record $337 in May 2021, but they have lost more than half of that since. Still, even accounting for the risk of an economic slowdown, Yoon expects Medifast’s heavy spending to improve its technology and distribution infrastructure, which could help raise annual sales to more than $2.5 billion, up almost $1 billion from 2021.

Yoon sees long-term profit growth in the double digits, in line with expected sales gains and with operating margins in the mid-teens.

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How One Founder Is Helping DIY Investors Navigate Risk

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August 14 is National Financial Awareness Day, and I had the opportunity to chat with John Duffy, founder of Trending Stocks, who went from personally absorbing the 2000 and 2008 market crashes to launching a risk-adverse stock market platform for DIY investors. Here, I chat with Duffy about trend following and investment risk management.

WHAT GAVE YOU THE IDEA FOR TRENDING STOCKS?

It took me 14 years to “get even” after two huge downturns in the stock market – first in 2000 (down 50%) and then in 2008 (down 56%). Losing 14 years of investing time and money was the impetus for me to research a better way in the market. I learned about the ancient trend following strategy – and while it worked well – there was no simple software or program to apply it. Spending hours upon hours charting and graphing doesn’t interest anyone, so I programmed and launched TrendingStocks.IO to automate the research time and hassle on the backend.

HOW DOES IT HELP INVESTORS AVOID RISK?

The trend following strategy inherently has a focus on risk management, so I applied that into the new platform. The risk management helps investor avoid riding the market down. You pre-set a fixed stop-loss amount based on your personal risk tolerance. As a stock goes up, which it should based on the trend following strategy’s identification, so does the stop-loss amount; it rides up. While the stop-loss amount fluctuates up and down causally with the stock, if it gets down far enough to cross below a bottom threshold – we flag you to sell and get out.

WHAT’S YOUR BACKGROUND?

Aside from studying finance, economics and business, I’m a Vietnam Navy Veteran. Oddly enough, this was my foray into programming and coding. I bunked with the first IBM IBM programmers in the world. Their expertise interested me, so I asked a bunch of questions and they taught me the science.

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Not to date myself, but this was before when computers could be owned, only leased. IBM recruited me to program after the war, so I entered as one of few who had learned how to program back then.

IS THIS FOR DAY TRADERS OR DIY INVESTORS?

This is definitely not a day-trading solution. Trending Stocks provides analysis at the end of every business day and therefore, it’s not suitable for day trading. It’s after-hours based.

The tech is suited for a long-term, DIY investor and anyone who’s a newbie or wants to get involved in the market. Aside from managing risk, being a diligent trend follower helps with wealth growth over time.

Once an individual has confidence they’re working with good investable trends and a solid risk management process, it’s an easy plan to follow and platform to supplement that plan.

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Entrepreneurship

Difference Between CFD and Shares

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Contracts for Difference (CFD) trading and share trading vary primarily in that when you trade a CFD, you speculate on a market’s price without acquiring ownership of the underlying asset, but when you trade shares, you must do so.

The main distinctions between a share and a CFD are ownership and leverage. You become the owner of the shares when you purchase shares. Investing in shares is equivalent to acquiring a modest ownership share in a business you support. You must pay the whole share price when purchasing stock shares.

CFDs vs shares

Contract for Difference is referred to as CFD. Without holding the underlying asset, you can speculate on the price of a security by engaging in online CFD trading. A stock, stock index, currency, commodity, or cryptocurrency might all be the underlying security for a CFD. With CFDs, you may join a trade with a lower initial investment because they trade on leverage.

Trading CFDs involves taking into consideration leverage and margin, fees and charges, instrument categories, going short, and asset ownership, which is one of the primary difference between CFD and share trading. Let me elaborate more.

What are Leverage and Margin?

Leverage and margin go hand in hand when trading CFDs. By using leverage, you may acquire exposure to an underlying asset without having to put down the whole amount of money needed to purchase and hold the real asset; instead, you just have to contribute a portion of the position’s overall worth.

The amount you must initially have available to begin a position, known as margin, fluctuates based on the contract size and the underlying asset you want to trade. Margin is not a cost. Based on the pre-determined leverage for the asset class, the first margin need is expressed as a percentage of the contract value. Risk is increased while trading on margin.

When you trade on the Invest trading platform, you must have the full asset value accessible, and you buy shares without applying leverage to your available funds.

Variety of Assets

You may trade on more than 2500 different assets on the Traders Union CFD platform, including shares, forex, commodities, indices, cryptocurrencies, ETFs, and options. You may do this to diversify your portfolio and get exposure to major exchanges across the world.

The Invest trading platform is a marketplace where you may buy and sell stocks and ETFs (ETFs). You may purchase and hold shares of your favorite businesses or any listed ETF on the platform, as well as benefit from the newest IPOs when firms go public, thanks to your access to over 1200 equities and 90 ETFs.

Asset Ownership

You may acquire exposure to an underlying asset, such as Gold (XAU), Apple (AAPL), or EUR/USD, without really holding it by using a CFD. Due to changes in the underlying asset’s price, you will either gain or lose money. The goal of CFD trading is to bet on changes in an underlying asset’s price. The size of the stake and price changes determine any profit or loss.

In contrast, when you purchase a stock on the Invest trading platform, you become the owner of the physical asset and look for a potential longer-term rise in the asset’s value before selling it.

Trader doing CFD trading

A Little More About How CFDs Can Differ From Investing

If your position remains open overnight while trading CFDs, you will be charged an overnight fee. While CFD trading is frequently utilized to speculate on near-term events like earnings announcements or the release of U.S. data reports, stock trading is typically favored for constructing portfolios.

In summary, both CFD and share stock trading offer benefits and drawbacks, and both let you profit from price changes that might result in either a gain or a loss. You should be able to choose which Traders Union platform best matches your trading preferences after you have an understanding of your trading goals. Which trading platform—CFD or Invest—does best for you?

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