Consumer sentiment is crashing, inflation forecasts are rising, and all major indices have entered correction territory. Let’s break down what this means for your investments.
Consumer Sentiment
The latest consumer sentiment survey shows that most Americans expect the economy and inflation to be bad. Most people think short-term inflation will reach 5% soon, while long-term projections (10-year) will hit 4%. That’s the highest it’s been since 1991.
The problem is that consumer expectations shape reality. People are reactive and if they believe the economy is getting worse, they spend less, which leads to lower revenue and shrinking margins. This causes economic decline and makes sentiment worse. It’s a vicious downward spiral.
Inflation Watch – The Producer Price Index (PPI)
The PPI (Producer Price Index) remained flat in February, which is welcome. However, the 12 month average is 3.2% — well above the 2.0% number the FED wants.
I should note that this PPI report showed a lot of growth in price, which was offset by super low energy costs. Yes, we’re paying less at the gas pump and for heating oil, but shit is still increasing in price a lot.
- Food & Feed Costs increased 1.3% (processed) and 2.7% (unprocessed)
- Non-feed Materials increased 0.8%
If energy prices rebound, PPI inflation could rise to 4-4.25% YOY, making it even harder for the FED to hit its 2% target. Enjoy the lower gas prices while we have them.
Stock Markets
All major indices have entered correction territory this week (down 10% from recent highs). If losses reach 20%, we’re looking at a mild recession. So we have to determine if this is just a healthy correction, or the start of something worse.
Judging by Overlord Orange Daddy’s administration, I think they expect a mild recession at some point this year. Plan accordingly, and remember to shelve the emotions when trading, because things could get worse before they get better.
The FED Meeting
As expected, the FED held rates steady in March, but their economic outlook shifted, validating what we’ve been saying for months now.
- Inflation Forecast for 2025: 2.8% (not the 2% experts had hoped for)
- GDP Growth Forecast: 1.7% (not the 2.1% predicted)
- Unemployment Forecast: 4.4% by year-end 2025
The economy is predicted to get worse. If GDP growth slows to 1.7%, we’ll technically be in a recession (two consecutive quarters of negative growth). Tariffs and other economic policies can have benefits, but also consequences like higher inflation, slower growth, and rising unemployment.
What This Means for Investing
The economy is weakening, inflation isn’t going away, and we may be heading into a recession. If you want to be a smart investor, you need to stick to the investing strategy and avoid making emotional/reactive decisions. The best way to do that is to compound shares at lower prices to increase dividends.
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