Displaying items by tag: bear market

(New York)

The flattening yield curve is an indicator of a recession and bear market to come. The last six US recessions have all been preceded by an inverted yield curve. Now it is happening again. The gap between two- and ten-year Treasuries was just 34 basis points last week, the lowest since 2007, or the eve of the worst American recession in almost 80 years. A few factors seem to be guiding the flattening. The first is the Fed’s bullish outlook on the economy and hawkishness on rates. The others are very weak inflation expectations over the long term as well as large demand for even modest long end yields, both of which have combined to keep ten-years pinned for some time now.

FINSUM: Yes a flattening yield curve is a bad sign, but remember that it takes, on average, several months (i.e. ~18 months) from when the yield curve inverts to when the economy actually goes into recession, with stocks historically continuing to rise along the way.

(New York)

Investors need to take notice, a bear market is arriving. Trade wars and rising rates have been plaguing equity markets, and US indices seem to have already seen their peaks. But while the US market is still holding on, investors need to take notice that both China and emerging markets are both flirting with bear markets, with China crossing into one this week. The threat of a trade war and a strengthening Dollar are both weighing on international stocks, and are threatening to crimp economic output. Morgan Stanley is warning of a big drop in the MSCI emerging markets index. According to the Bank’s strategy team, “This is a dangerous market … We now think we’re heading to an outright bear market”.

FINSUM: If there is a global recession coming, it seems like one that will start overseas and filter back to the US. The big question is whether that recession will lead to major asset meltdowns, such as in corporate debt.

(New York)

Hedge fund managers have seen a real decline in their reputations over the last decade. Chronic underperformance and the rise of passive vehicles has led to a high degree of skepticism. Therefore, take their comments with a grain of salt. That said, the hedge fund community is ever more loudly saying a new crisis is on the way. Particularly in Europe, famed managers are saying a repeat of the Crisis is coming. These names include Crispin Odey, Alan Howard, Greg Coffey, and Russell Clark.

FINSUM: There is a lot of doom and gloom out there, but there has been for years (periodically). Everyone was saying the same thing in 2015, and here we are three years later with markets much higher and the economy doing well. That said, we do see some storm clouds brewing.

(New York)

Don’t be fooled by the “prophets of boom”, or the many Wall Street and economic leaders who are saying that the US economy is in great shape and will deliver strong growth for years to come. One well known strategist, David Rosenberg, who called the Great Recession before the Crisis, says that a recession is imminent and will arrive within the next 12 months. Rosenberg believes the January 26th high for the S&P 500 will be the peak of this bull market, and that it will ultimately be the Fed that sparks the recession. “Cycles die, and you know how they die? … Because the Fed puts a bullet in its forehead”.

FINSUM: There are a lot of late cycle indicators flashing in the US economy right now. A recession in the next year does seem plausible, if not overly likely.

(New York)

Well, the Dow might be about to suffer its longest losing streak in 40 years. The index has lost eight days in a row, and many of them were punishing. Now, if the Dow loses again today, making it nine days in row, it will be the longest streak since 1978. Since 1896, the Dow has only suffered ten losing streaks of nine days or more.

FINSUM: This seems like one of those stats that appears fairly meaningless when it is happening, but in hindsight might seem the start of a bear market/correction or recession.