In late August, there was talk of a “Goldilocks economy” in the US, which refers to an ideal balance of growth that is “not too hot, not too cold…just right” to keep the bears (negative market sentiment) away. However, this sentiment quickly faded as stocks performed poorly in August, marking the worst month since February. The return of the bears can be attributed, in part, to market psychology. The term “Goldilocks” was originally coined in 1992 to describe an economy with 4% annualized growth and 3.2% inflation, and while the current economy is not quite at that level, it is more “Goldilocks-like” than many realize.
Earlier this year, there was a lot of bearishness and expectations of a recession. The bears believed that Fed interest rate hikes and other concerns such as the situation in Ukraine and issues with Silicon Valley Bank would hinder GDP growth and help slow inflation. Fed Chairman Jerome Powell warned that rate hikes would cause “economic pain” and likely lead to a recession. However, inflation has been steadily decreasing since June 2022, and the economy has shown steady growth, with strong job growth and a decrease in unemployment. Despite these positive indicators, stock market performance has been lackluster, leading to the return of bearish sentiment.
The author of the article has consistently believed in a positive economic outlook, with no recession, modest growth, normalizing inflation, and a strong stock market. The author also notes that the stock market has been performing well despite the bears’ negativity. However, with the recent labeling of the economy as “Goldilocks,” the author acknowledges that there may be some bumps in the road ahead, but advises readers to stay calm and not get too wrapped up in the ups and downs.
The Wall of Worry is described as a phase where negativity and panic can easily resurface after a period of being proven wrong. Even a small hint of risk can bring back the negativity experienced before. However, the author suggests that most of this negativity is exaggerated and does not necessarily reflect actual market breaks or volatility. It is common for a young bull market to experience a few short-term breaks, which can cause significant drops in stock prices, but it is also possible to have periods without major downside volatility.
In conclusion, despite the recent return of bearish sentiment, there are still positive indicators of a healthy economy. It is important to stay level-headed and not get too caught up in the ups and downs of the market. The future remains uncertain, but it’s best to focus on the present and keep moving forward.