Well, it may not be quite time to start freaking out about the economy, but we may be close…
Here are the latest GDP estimates from the Atlanta Fed:
Don’t worry, I nearly did a spit-take right onto my laptop screen too.
Just a few days ago, the economists at the Atlanta Fed revised U.S. GDP growth for the January – March period from +2.2% growth to -1.5% growth.
That’s right: negative growth for the current quarter.
I’m not sure I’ve ever seen economic growth fall this far, this fast. On January 31, the Atlanta Fed had growth at a robust 2.9%…
We’ve seen a lot of economic data get worse over the last month or so. Home sales, inflation, durable goods orders, consumer sentiment, consumer spending, auto sales, unemployment…
So, if you’re wondering about the stock market sell-off this week, well, there you go. The U.S. might actually be entering a recession…
Tread Lightly
Now, it’s certainly possible that economic data and consumer sentiment could bounce back quickly.
Last summer, we saw unemployment rise for three straight months, and a mini-panic broke out when it peaked at 4.2% in August 2024. It sure looked like the labor market was falling apart. That’s when the Fed stepped in with a jumbo 50 basis point rate cut in September – only to see unemployment numbers tick right back down again…
If this decline in economic activity is just a blip, great. The sell-off we’ve already gotten has pushed some weak hands out and also taken some of the fluff out of stock prices…
However, if this decline in economic activity is NOT a blip, if there are more headwinds to come, high valuation stocks will get thumped.
Now, you might think the Mag 7 would be the most vulnerable. But the forward P/E for the Mag 7 averages 30 right now…
But check out the forward P/E ratios on some “regular” stocks:
Walmart – forward P/E of 36
Airbnb – forward P/E of 31
Netflix forward P/E of 39
Costco – forward P/E of 56
Starbucks – forward P/E of 39
Chipotle – forward P/E of 41
That’s not an exhaustive list, and these are all well-run companies. They are also very expensive…
Tread Lightly,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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