Displaying items by tag: recession

(New York)

The markets took another dive yesterday, with the Dow losing well over a 1%, the S&P 500 down almost 1.5% and the Nasdaq down over 2%. That loss jolted investors out of the sense that things might be back to normal after a strong recovery in recent days. This all begs the question of whether it is really time to start worrying about a recession? A new study from Bank of America says no. The bank did analysis of economic performance going back to the sixties and have found that compared to previous pre-recession cycles, the US is actually moving away from recession now.

FINSUM: Relying on historical data is probably not going to be very fruitful right now as the pretext (artificially low rates etc.) is totally different for this economic cycle.

(New York)

The amount of data pointing to recession is growing strongly. Not only are rates and yields rising quickly, but housing has been showing much weakness. Now there is another major leading indicator flashing red—commodities. Commodities are often seen as a key economic bellwether as they tend to show aggregate demand ahead of actual economic figures. By that measure, things are looking bad. Bloomberg’s commodity index has dropped 5% this summer, with both agricultural commodities and metals performing poorly. One factor hurting commodities is the Dollar, as the currency is strong and because commodities are priced in Dollars, it tends to hurt foreign demand.

FINSUM: Everything we are seeing seems to point to a peak. Housing has turned negative, commodities are weakening, and rates are rising. Did the stock market see its bull market peak last week?

(New York)

The US economy is on fire. Growth is strong, consumer confidence is high, and (somewhat worryingly) the Fed is almost giddy. However, even the greatest optimists will have a gnawing fear caused by the US housing market, which has been in decline for the past handful of months. The huge rising gap between home prices and wages has finally stalled the market, all while rates move higher and dampen demand. The big risk that no one is pointing out, though, is how that trouble in housing will flow through to the broader economy. It will likely not be via mass mortgage defaults and foreclosures like last time, but rather through a severe tightening of purse strings. The big rise in home prices means Americans disproportionately hold their wealth in home values, so a decline will cause a major loss of wealth, and thus spending, seizing up the economy.

FINSUM: In 1978 a 20% decline in home prices would have caused a 1% decline in aggregate income. Today, the same decline would cause a five percent drop, or about $600 bn of lost equity. Housing may still lead the economy downward.

(New York)

The big question on every investor’s mind (and Wall Street’s) is when the US recession will arrive. With the economy doing so well, and certain indicators flashing negative, a recession in the next few years looks all but certain. But how soon? Some say it will be by the end of 2019, others think that is too aggressive. Well, a survey of US business economists has just been published that shows a majority of them believe the recession will arrive before the end of 2020. Most precisely, 66% believe a recession will occur before the end of that year.

FINSUM: This seems like a fair representation to us, but predicting the timing of recessions is notoriously difficult, so there may be little value in this survey.

(New York)

Several Wall Street analysts are warning that the US will fall into a recession in 2019. Some are even pegging the odds as high as 100%. The reason for the recession will be the increasingly aggressive Federal Reserve, which yesterday adopted a more hawkish stance on the economy and rates (with a more aggressive dot plot and the removal of “accommodative” from its policy statement). The current trade war is the other big factor which could push both the US and global economy into recession, as international trade is already contracting.

FINSUM: Forecasting the timing of the next recession seems futile to us. However, we will admit that the Fed adopting a more hawkish stance (and the fact that the funds rates is now higher than inflation) worries us.