Equity investors just endured the worst first six months of any year since 1970. This occurred despite a “Bear Market” rally in May. For the month, the S&P 500 was down -8.4% (see last column of table) as was the Russell 2000, with the Nasdaq down -8.7% and the DJIA -6.7%. All the indexes except the DJIA are in “Bear Markets” (see second from last column).

This isn’t any wonder. The incoming data has shown significant deterioration and major data revisions have all been to the downside.

The latest GDP revision for Q1 put the quarter deeper into negative territory at -1.6% (the initial estimate was -1.3% and the first revision was -1.5%). Worse, consumption, which has been the buoyancy for economic growth, was revised down to +1.8% for Q1 from +3.1%. That means a much weaker handoff from Q1 to Q2. And, given what we are seeing from the high frequency data, it looks very much to us that Q2 GDP growth will also be negative. The NY Fed’s model shows an 80% probability of a Recession, and the Fed’s Atlanta Reserve Bank’s GDPNow model puts Q2 GDP growth at -1%. If that is close, that would be two quarters in a row of negative GDP growth. While the National Bureau of Economic Research (NBER) is the final arbiter of recession start and end dates, the markets’ rule of thumb has always been two consecutive quarterly negative GDP growth prints. Thus, our view for the past few months (as discussed in this blog), that we were likely already in Recession, appears to be on the cusp of validation.

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