So, the plunging stock market has finally dropped into bear market territory — a nearly 20% full-fledged bear market. This comes as no great surprise.
The market's been falling all year. I take no pleasure from this. Over 100 million Americans are invested one way or another in various retirement accounts.
The vast majority of these retirement-savings investors are middle-income working folks. They're not rich. They don't own the bulk of the market wealth, but for them, their monthly reports from various financial planners or brokerage firms are important — very important.
For most of my career, I have argued that the best investment strategy is stocks for the long-run. Professor Jeremy Siegel wrote the book on this, as did Professor Burton Malkiel. Jeremy is from Penn. Malkiel is from Princeton and I think folks who followed their advice to buy on weakness and hold for 40 or 50 years have done very well.
This current bear market correction is certainly not the end of the world. For those faint of heart, I recommend not opening your monthly statements when they come, at least for a while.
For others, I suggest deep prayer and meditation. We will get through this, but there's no question in my mind that however temporary these Biden radical progressive, big-government, socialist economic policies have been driving stocks down all year, excessive federal spending, the war against fossil fuels and the Fed's money printing have all contributed mightily to a sharp rise of inflation.
That led to a closely linked upturn of market interest rates and a pronounced drop in the living standards of typical American families, where spiking inflation has completely undermined solid wage and salary increases.
Real wages have fallen for 13 consecutive months, according to some metrics, and if you look under the hood of the major stock market averages, you see it clearly.
The S&P 500 Retailing index is down over 31% year-to-date and if you tack on the Producer Price Index increase of 11%, those consumer-related stocks are off over 40% this year, similarly for the Home Builders Index, which is now approaching a 50% loss. Semiconductors near a 40% drop. The Consumer Discretionary Cyclicals off over 40%. Infotech is off over 35%.
I don't mean to bore you with numbers, but I'm trying to explain that if you look under the hood of the major averages, key economic sensitive sectors have been in a deep bear market for quite some time.
They are pointing toward recession. They could be discounting inflationary recession, which is the worst of all worlds.
The 30-year mortgage rate is at 5.5%. Ten-year Treasury notes have just about doubled to 3%. The Federal Reserve's target rate, which is hovering at just under 1% currently, could go as high as 3.5% by year’s end, according to sound money advocate Jim Bullard, president of the St. Louis Federal Reserve Bank.
Unfortunately, the Fed fell under the woke spell of Bidenomics — spend, borrow, print — and remained in denial of the inflation threat of these left-wing policies.
Now, we all have to pay the piper as reality closes in around them. I will again say: The only way to stop inflation is by abandoning the progressive agenda. Stop the massive spending. Stop the regulatory control over the economy. Stop the radical climate policies that have produced less energy, higher gasoline prices and huge consumer angst.
People in the Biden White House choose to ignore the stock market — big mistake at their own peril. The stock market is reflecting what the rest of the country is saying.
The latest AP poll shows Biden approval at 39%, disapproval at 60%.
A CNN poll shows 86% are either "concerned" or "scared" about the country's direction, whereas 14% are either "excited" or "optimistic." I'd truly like to meet that "excited" crowd. That was a joke.
This is serious business. If I may summarize these feelings, the key point — whether it's the stock market or it's consumers or working families or well-heeled businesses— nobody has any confidence in the Biden administration, virtually nobody, and confidence matters a lot.
A free-market economy is built on confidence, but that confidence has to rest on the rule of law, limited government, sound money, minimal tax rates and the great American idea that as good as the country is today, it will be even better in the future.
We've lost that for the moment, but we will get it back. Trust me, the cavalry is coming.
This article is adapted from Larry Kudlow's opening commentary on the May 20, 2022, edition of "Kudlow."