Why July 28 2022 Will Be a Significant Day for the Stock Market
It has been a rocky year for the economy and the stock market impacted by the trifecta forces of the COVID-19 pandemic, the Russian war in Ukraine, and skyrocketing inflationary pressures.
For many long-term investors and retirement account holders, there has been significant disappointment given the sharp decline in portfolio holdings. This is especially true for those nearing retirement.
For short-term investors and day traders, 2022 has not been for the faint of heart either.
To win in this environment means you have to know what you are doing, be decisive and diligent all at once. A big part of this formula is knowing which information is substantial and which is noise. By doing so, you can focus on the substantive data and use it to the best of your ability in making successful investing decisions.
What does a “recession” really mean?
One key question on many people’s minds is this: When will we reach the bottom of the market? That is when many of us would like to accumulate positions at cheaper valuations. More importantly, knowing the answer to that question ties closely to how many hits one can stomach. How far down can your portfolio value go before you decide you had enough and you need to sell to recapture whatever funds are left?
A critical target date is one when we would really know if we are in a recession. Forget about the noise and speculation in the media. Separate fact from opinion.
First, we must agree on how a recession is defined. One common definition is a period when economic output contracts for two straight quarters. We already know Q1 Gross Domestic Product (GDP) in the US contracted. This means the first estimate we get from the government regarding Q2 GDP can give us the conclusion we are looking for. If Q2 GDP contracted, we will have two successive quarters of declining GDP signaling that the US has indeed entered into a recession.
What happens on July 28?
On July 28, the US Department of Commerce’s Bureau of Economic Analysis (BEA) will publicly release their advance estimate of 2Q GDP at 8:30 am ET.
It is important to note that this will be a preliminary estimate and will be superseded by a second estimate on August 25 and third estimate on September 29.
Are there any caveats to the significance of that date (July 28)?
Yes, three important caveats exist:
1) BEA’s own estimate may change on August 25 and again on September 29
2) The definition of a recession we are discussing is not the official one the US government uses. The National Bureau of Economic Research’s Business Cycle Dating Committee, defines it vaguely as being a “significant decline in economic activity that is spread across the economy and that lasts more than a few months” according to a recent Bloomberg article.
3) Economists at various large investment banks are pointing to late 2022, 2023 and 2024 as various dates we may enter a recession which means there is no real consensus what will happen or when it will happen.
What should investors make of this information?
If BEA’s release confirms we are in a recession, the broad stock market indices in the US and potentially those across the globe may be in for a dramatic decline (10–20% one-day drops would not be outrageous). This would be an opportunity for value investors to find quality cheap companies to buy. On the opposite end of that spectrum, investors who cannot stomach a dramatic decline and know they have a liquidity need in the second half of this year may want to take profits (or cut losses) on their positions before that important date comes.
If the outcome of the report is positive, then it will be a non-event. The markets may likely even rise depending on how optimistic the data is. The clock will restart and there will be no way to confirm if we are in a recession unless we have another two successive quarters of declining GDP meaning the earliest revised date for such a conclusion would be in 2023.
Note: The above represents the author’s opinion and analysis, but is not intended to be financial advice.
