Josh here – My colleague Ben Carlson notes on the new episode of Portfolio Rescue that pretty much every commodity and inflation spike like the one we’re currently experiencing ends up getting “cured” by an economic recession. Historically, recessions lead to slackening demand which ultimately cools down prices and resets the game. That doesn’t have to be the case this time, but if you’re building your expectations probabilistically, the likelihood of a recession beginning later this year just went up substantially. Even relative to where we were just a month ago.
The economy was absorbing higher prices prior to the Russian invasion of Ukraine, but now we’re dealing with a whole new leg higher for everything from natural gas prices to wheat and fuel. Worse – these prices are now being baked into the wages that workers are demanding.
What development might change this? What could make it worse? What are the implications for the stock market?