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Asset Watch
Thursday, December 8, 2022
With recession fears putting a bearish bow on investors’ attempt at a Santa Clause rally, November’s momentum has stalled in December. On Dec. 6, JPMorgan CEO Jamie Dimon – who runs the largest bank in the U.S., said:
“Inflation is eroding everything, and that trillion and a half dollars will run out sometime midyear next year. When you’re looking out forward, those things may very well derail the economy and cause a mild or hard recession that people worry about.”
Likewise, Union Pacific CEO Lance Fritz added:
“The Fed is trying to hit all of us in the line of fire with a slower economy and hurting demand. It’s not good.”
So, with economic uncertainties abound and seasonality poised to turn bearish in January, could Walmart provide protection if a recession occurs?
Looking back at the global financial crisis (GFC), the red line shows how the S&P 500 peaked in late 2007 and continued its descent for more than 12 months. On the other hand, the blue line shows how Walmart rose sharply, and even after it declined substantially from its bear market high, it still ended the recession above its late 2007 low.
Therefore, if recession realities confront the U.S. economy in 2023, Walmart may be a prudent place to hide. Furthermore, when using an offsetting long-short approach, Walmart could provide tactical value as the long position, while a more economically-sensitive stock like Union Pacific could serve as the short position.
Either way, will Walmart act as a bullish sanctuary in 2023?
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