Displaying items by tag: bear market

(New York)

We guarantee that we have a great recession signal in hand that you have not been paying attention to: RV sales. Yes, you read that right, RV (recreation vehicle) sales. Elkhart, Indiana is the epicenter of motorhome production, and their product has proven to be a reliable recession indicator. “The RV industry is better at calling recessions than economists are”, says one economics professor at Ball State University. The big worry is that shipments of RVs are down 20% this year, a big drop.

FINSUM: This seems like a classic consumer discretionary spending leading indicator. And it is not looking good right now.

(New York)

There are a handful of safe haven stock sectors that investors tend to rely on during market downturns. Healthcare, utilities, and REITs come to mind. Lately, some have been saying bank shares may also prove a good defense. However, investors should be very wary of two of those just mentioned: healthcare and banks. While on the surface healthcare stocks look very good for a recession—it is not as if people stop getting sick—the reality is that there has never been more regulatory pressure on the sector (from both sides of the aisle), which means it is far from safe. Additionally, the idea that banks have become safe, utility-like dividend machines is flawed, as bank earnings are very exposed to the economic cycle, and thus will likely see big moves in both price and yield.

FINSUM: We agree with this assessment entirely. Healthcare is more vulnerable than it has been in memory and banks are a long way from being dependable utilities (excellent PR job by Wall Street though!).

(New York)

Bloomberg has published a very insightful article about the current state of the market. In particular, it offers a view of how the big run up in bonds is likely to end. The fears that are driving the bond market—mostly that de-globalization will cause a recession—can only end two ways. Either the recession and de-globalization never materialize, in which case yields shoot back up, causing big losses in bonds. Or, the breakdown of global trade does happen, In this scenario, goods likely become significantly more expensive (especially in west) because there is no more labor and cost arbitrage. In this scenario, inflation then jumps, again sending yields much higher and sparking losses. In other words, the current bond market can only end in tears.

FINSUM: This was a very insightful argument in Bloomberg today. While there are some nuances that might cause some different outcomes, the basic contention is quite astute. Stocks seems a much better bet.

(New York)

Every investor seems to be panicking about the yield curve right now, and not without reason. An inverted yield curve has accurately predicted each of the last several recessions. And not only is the yield curve inverted, but yields are shockingly low—the 30-year Treasury yield just went sub-2% for the first time ever. However, that is not what you should be worried about, argues a top economist at the Economic Outlook Group. Instead, you should be watching consumers like a hawk, as they will be the deciding factor as to whether the US heads into a recession. “All eyes should therefore be laser focused on what households are thinking and doing in the coming months--- and not on some tampered yield curve”, says Bernard Baumohl, chief global economist at the Economic Outlook group.

FINSUM: The yield curve is less manipulated than it once was, but we are far from a rate environment one could say was comparable to inversions past. We think this analysis is spot on.

(New York)

The markets nosedived again today as recession fears are spiking amongst investors globally. While US investors got a bit of a reprieve from the trade war due to the announcement that new tariffs had been delayed, bad economic data out of Germany and China made a global recession look more likely. The big selloff not only dragged US bonds into a 2/10-year inversion, but also inverted the UK yield curve for the first time since 2008. German bonds saw yields fall to a record low (in negative yield territory).

FINSUM: The doom and gloom is warranted given the current backdrop, but it is also not unreasonable to think the current “wall of worry” is the perfect mountain for this bull market to climb.