Inflation, recession or market crash?

What the data suggests right now and how to navigate the pain.

The stock market has been going south for many weeks now. Fear of very high inflation has been the main cause. Why? Too much inflation triggers central banks to raise rates and to decrease liquidity in the economy. If they do this for too long or too fast, then a recession may be the price. And recessions equal “Bear markets”.

I have been optimistic on the stock market for a long time as coming out of the pandemic the economy has been recovering, companies were making lots of profits (and still doing so) and credit conditions were healthy.

A recession is always predicted by a deterioration of credit conditions. And during recessions the stock markets go down.

So what?

Best case scenario: the data about inflation starts to cool off and the Federal reserve starts to be more dovish (less hawkish), the economy avoids a recession and the Stock market starts going up again. This migth happen before September and as early as next week.

Worst case scenario: inflation data keeps looking “out of con…