Michael Farr: Tougher times are likely ahead for the markets, and investors must be courageous

It's a fantastic clip of twelvemonth and a precise unusual clip for the markets and the economy. As we await the astir anticipated recession successful history, things aren't awful.

The S&P 500 closed astatine its lowest level of the twelvemonth connected Oct. 12 erstwhile it was down astir 25% for 2022. Since then, it has rebounded sharply and is present disconnected by astir 15%. Earnings proceed to summation and expand, though immoderate companies person missed Wall Street's expectations and person been punished. This week, a institution reported beardown results connected the apical and bottommost lines but suggested that its afloat twelvemonth would apt beryllium connected the low-end of the forecasted range, and the banal fell. When investors are nervous, determination are less harmless places to hide.

Investors astir apt should proceed to consciousness nervous. Though astir look hopeless for this downturn to beryllium implicit and for the Federal Reserve's rate-tightening rhythm to end, the wanting won't marque it happen. Despite immoderate decent net numbers, determination are troubling humanities indicators that powerfully suggest an upcoming recession.

Recessions travel patterns, and each are defined by contractions successful assorted types of economical activities and measures. On average, stocks autumn astir 30%, and net for the S&P 500 shrink by 20%. Because these are averages, the existent numbers whitethorn beryllium greater oregon less. Perhaps the astir 25% bottommost connected the S&P 500 volition hold, oregon possibly little lows are ahead. Inflation is slowing, but it seldom slows meaningfully without an summation successful unemployment. That hasn't happened yet, and possibly it won't. If it doesn't increase, it would beryllium uncommon capable to beryllium considered aberrational. I've ne'er thought it omniscient to expect aberrational. I expect the unemployment complaint to attack 5.5%. Historically, that's not a atrocious level.

Consumers correspond two-thirds of the U.S. economy, and they person been spending. That's thing new. U.S. consumers walk much reliably than astir immoderate different benignant of user successful the world. They consciousness somewhat affirmative due to the fact that of wage gains and larger paychecks. The occupation is that the larger paychecks way the larger market and gasoline bills. As a result, consumers consciousness affirmative astir affording less. Moreover, this affirmative vibe is rapidly confronting eroded savings accounts and soaring recognition paper balances. To wit, the user is moving retired of spending money, portion prices for rent, nutrient and wellness attraction proceed to rise.

When I'm connected CNBC, folks connected Twitter supply moving commentary astir about everything immoderate of america has to say. Comments are each implicit the place, but a changeless is disdain, derision and insults for comments that dependable negative. It is baffling. What is 1 expected to accidental astir a acheronian and cloudy sky? The effect seems foolish and conscionable wrong.

To beryllium clear, markets person been contracting for astir of this twelvemonth aft peaking successful January. This has not been pleasant, but it hasn't ushered successful the apocalypse, either. Most important for those who privation to stay clear-eyed is that it isn't over. Perhaps history's lessons volition beryllium wrong, and the worst whitethorn beryllium over. In my 35 years successful this business, I person benefited astir from dispassionately focusing connected data. The information is what it is. Should the satellite not end, I expect that my investments volition beryllium worthy much arsenic the system recovers and firm America resumes its expansionary path.

Over the past 10 years markets person much than doubled, and astir investors person done well. Risk taking is champion near to others and truthful is cowardice. Difficult markets and economies necessitate courageousness and an abiding optimism to endure pugnacious times and look guardant to sunny skies.

There volition beryllium 5 of america for Thanksgiving meal this year, and a 12-pound turkey volition bash the trick. I volition number my galore blessings and clasp each of you among them. Thank you for your friendship, loyalty, enactment and kindness these galore years. I'm grateful to beryllium an American and judge that America's aboriginal is brimming with committedness and wonderful, profound possibility. We volition marque it done together.

— Michael K. Farr is simply a CNBC contributor and president and CEO of Farr, Miller & Washington.