Displaying items by tag: recession

(New York)

The whole market is freaking out about the trade war. Between the yield curve inversion, plunging yields, and weakening economic indicators, investors are on bear market and recession watch. However, these worries are likely overdone, meaning the current market is a buying opportunity. There is little consensus that economic data is worsening and the economy is headed for a recession, but investors seemed compelled to believe this because the expansion is about to become the longest on record.

FINSUM: Investors seem to be feeling a sense of doom that has little basis in reality. There is no reason why the economy has to go south just because the expansion has reached a decade.

(New York)

Some of the market’s most important indicators are sending warning signs. Both oil and gold are trading in a way that has traditionally signaled that a big downturn is headed our way. Oil has fallen to near a bear market on concerns over growth, while gold has shot higher on the same worries. The extent of the moves is unique and has often presaged nasty movements in broader asset prices. In both the Dotcom bust and the Financial Crisis, oil and gold behaved similarly, so the question is whether they are sending the same message now. One market analyst noted, “Only three other times in history precious metals surged while oil plunged! All of them happened during severe bear markets and recessions … Buckle up, folks”.

FINSUM: It is odd to think that this has not happened more often as it is exactly what you would expect in times of anxiety about growth. Accordingly, this must be noted.

(New York)

The big bull market of the last decade is now coming to an end, according to Morgan Stanley. The bank says that the US market cycle has moved into a “downturn” phase for the first time since 2007. The bank says the change in its cyclical indicator adds to “a litany of downside risks we see for the markets”. The bank says the change of phase typically means a bear market is coming. The call on markets came in a report delivered to MS clients on Sunday and follows May’s big 6%+ drop in stocks.

FINSUM: In our view, it is a particularly hard time to make a call on markets. Things do seem to be worsening in the data, but most of the negativity is colored by the trade war, which could conceivably end abruptly. That hint of positivity aside, it seems best to be positioned defensively.

(New York)

One of the best indicators of the health of the economy from the last several years has been the strength of the labor market. In particular, low unemployment and jobless claims have highlighted a tight labor market traditionally associated with a strong economy. However, what if the opposite was the case? Recent academic studies show a new recession indicator: full employment. Historically, downturns have typically started about 12 months following the lowest unemployment rate reached in a cycle.

FINSUM: We are currently at 3.7% unemployment, which is VERY low. It seems like the economy is exactly in the “12 months from a recession” position, at least according to this research.

(New York)

Bonds and stocks are at odds right now. Yields have dropped considerably as the bond market is predicting pain to come. Stocks have sold off, but are still around all-time highs. If you look at how money markets are currently priced they imply a whopping 20% decline in stocks. There is not a much macro data to support the money markets’ pricing, but it is certainly a sign to pay attention to. “The rates market has probably overreacted relative to other asset classes in the last two weeks. However, the macro backdrop is fundamentally more uncertain today”, says Deutsche Bank, continuing “The renewed trade tensions create downside risks which were deemed to be negligible 2 months ago”.

FINSUM: Stocks are going to react to economic data and the trade war, so the current forecasts for stock prices are only as good as one’s ability to prognosticate those factors.