Gary Shilling Checks In on His 9 Investment Themes

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Stock market bulls keep hoping the Federal Reserve will back off its goal of wrangling inflation back to the central bank’s 2% target, even if doing so tips the economy into a recession, economist and investment advisor A. Gary Shilling noted in his latest monthly Insight newsletter.

“We continue to believe that the central bank will win and a recession, if not already underway, will commence soon,” Shilling said, noting that equity investors’ insistence on “fighting the Fed” has resulted in “a saw-toothed stock market along a declining trend” in the S&P 500.

January’s strength in incomes and spending may prove temporary, as consumers are borrowing heavily to make ends meet and layoffs are spiking, he wrote. In addition, single-family home purchases have plunged and office building owners are defaulting on loans as post-pandemic occupancy sits at 50%, he said.

Speculative investments, including crypto, are disintegrating and “the S&P 500 is down 15% from its early 2022 peak, with 29% more decline to reach our 40% peak-to-trough target,” Shilling said.

Shilling’s firm has stuck to the same investment themes since May 2022, and that strategy has worked well for the 10 months through February, he suggested.

“Equal weights of positions in these themes returned 8.6%. In contrast, the S&P 500 lost 4.5% and a portfolio of 60% S&P 500 and 40% Treasury bonds fell 8.0%,” he said, noting the firm never recommended weights for the themes. The themes gained an average 10.4% annualized, according to Shilling.

See the gallery for Shilling’s comments on how his nine themes have succeeded since May, when he suggested U.S. stocks had probably entered a bear market and expanded his “risk off” investment strategy, and on where they’re going.