Tag: Recession

A measure of stock-market panic is at its highest in 8 weeks as Wall Street’s downturn gathers

A measure of stock-market panic is at its highest in 8 weeks as Wall Street’s downturn gathers

A selloff in Monday afternoon trade reached levels not seen since early February by one measure.
The Arms index is was at its highest since on the NYSE briefly hitting above 2.6, approaching its highest level since Feb. 5, when the markets saw another sharp descent, according to FactSet data.
The Arms index is a volume-weighted measure of market breadth, that tends to rise when the broader market falls, as the intensity of the selling in declining stocks is usually greater than the intensity of buying in rising stocks, was at 2.621 on the NYSE.
It last traded at 2.516.
Levels above 2.000 are considered panicky.
The Dow Jones Industrial Average DJIA, -1.90% ended off its lows, but still booked a loss of about 460 points, or 1.9%, at 23,644 in Monday afternoon trade.
The S&P 500 index SPX, -2.23% ended off 2.2% at 2,581, below its 200-day moving average, while the Nasdaq Composite Index COMP, -2.74% turned negative for the year and for the session, off 3.2% at 6,836.
The number of advancing stocks on the NYSE outnumbered decliners 2,378 to 567, or by around a 4.2-to-1 margin.

A full-scale trade war with China would plunge the US into recession, an investment bank has warned

A full-scale trade war with China would plunge the US into recession, an investment bank has warned

Such a war could plunge the US into a recession and increase the number of unemployed citizens in the country by more than six million, according to investment bank Macquarie.
As President Donald Trump imposes another round of tariffs on Chinese imports into the USA, fears that a full-scale global trade war may be in the offing have intensified, but the impact of such a war remains uncertain.
Macquarie analysts Ric Deverell, Hayden Skilling, David Doyle, and Neil Shankar tried to shed some light on the issue, citing a paper released back in 2016 by the Peterson Institute for International Economics prior to Trump’s victory in the presidential election.
In the scenario of a “full trade war” it is estimated that the US would enter a recession in 2019, while unemployment would more than double from current levels. “As a result, the US enters a recession in 2019, and the unemployment rate peaks at 8.6 percent in 2020.”
In a scenario the PIIE calls an “aborted trade war” — whereby the USA imposes tariffs for around a year before backing down — “the direction of the effects is similar, but the magnitude is much more benign.” “In this case, GDP growth troughs at 1.2 percent in 2018, while the unemployment rate peaks at 6.0 percent in 2019,” the note warns.
China hit back at Trump’s tariffs on Thursday, saying it will introduce its own trade barriers in response. “But China is not afraid of and will not recoil from a trade war.
While Trump’s rhetoric has largely been directed at China, he has also placed tariffs of 25% on steel and 10% on aluminium for the EU.

Come the Recession, Don’t Count on That Safety Net

Come the Recession, Don’t Count on That Safety Net

What will President Trump’s first recession look like?
The stock market tumble after the government reported an uptick in wages last month suggests just how worried investors on Wall Street are that the Federal Reserve might start increasing interest rates more aggressively to forestall inflation.
It is hardly premature to ask, in this light, how the Trump administration might manage the fallout from the economic downturn that everybody knows will happen.
By slashing taxes while increasing spending, President Trump and his allies in Congress have further boxed the economy into a corner, reducing the space for emergency government action were it to be needed.
Unemployment remained at 9 percent or more for over two years.
What is critical to note is that each of the two programs did more to relieve extreme poverty during the depths of the Great Recession than even the earned-income tax credit, the main source of government support for low-income Americans.
This is a problem for vulnerable Americans bracing for the next economic shock, because if Mr. Trump and his colleagues in Congress have their way, the only surviving bit of the social safety net when the next recession hits will probably require beneficiaries to work.
Assiduously looking for places to cut spending to temper a growing budget deficit, the White House seems more than willing to pare the safety net.
The budget it unveiled this month called for a 27 percent cut to the food stamp budget and a 20 percent cut to Section 8 housing assistance by 2028.
While the Trump administration is unlikely to end unemployment insurance, the Emergency Unemployment Compensation program expired at the end of 2013.

A message from the futureA history of the Trump slump

A message from the futureA history of the Trump slump

LOOKING back from the vantage point of 2025*, economic historians are starting to write their analyses of the Trump slump. “Trade wars are good and easy to win” he said.
Both China and the European Union (EU) retaliated in kind without trying to escalate the tensions.
The trade deficit widened rather than declined.
So in late 2018, just before the mid-term Congressional elections, an enraged President passed a general tariff along the lines of the Smoot-Hawley tariff of 1930.
Get our daily newsletter In the early months of 2018, the Federal Reserve had continued to tighten monetary policy in response to the low unemployment rate and the prospect of fiscal stimulus.
That tightening only had a significant impact in early 2019, just as the trade war got nasty.
While the Fed swiftly cut rates again, its actions were too little and too late.
The resulting war cost 2m lives, disrupted Asian trade and added to the economic downturn.
The trade war also damaged growth in China.

Fed officials are already plotting how to combat the next downturn

Fed officials are already plotting how to combat the next downturn

Greg PHILADELPHIA (MarketWatch) — The economic outlook, if not the weather, was sunny in Philadelphia this weekend, where the economics profession gathered for its annual conference and job fair.
Instead, officials started a serious conversation about what new tools they might need to combat the next downturn.
That means it may also have to restart quantitative easing, or asset purchases, that was so unpopular on Main Street and in Congress.
This prospect causes some heartburn, so the central bank is casting around for new ideas.
On the table is a strange-sounding policy called price-level targeting or raising its 2% inflation target to 4%.
“We, not just the Fed but the economics profession, need to have a pretty healthy debate about this.
At the moment, the Fed targets an inflation rate.
If the price level is low for a time, the Fed would need to allow inflation to run hot to get back to the price-level target.
Former Fed chairman Ben Bernanke has suggested that “temporary” price-level targeting might be the answer and only use the policy at the lower bound.
Mester, and St. Louis Fed President James Bullard in a separate speech, agreed with Harker that study of these new tools was appropriate.

Free exchangeHow should recessions be fought when interest rates are low?

Free exchangeHow should recessions be fought when interest rates are low?

When it does, central banks will reach for crisis-tested tools, such as quantitative easing (creating money to buy bonds) and promises to keep rates low for a long time.
One is to change monetary strategy. If a recession causes below-target inflation for a year, the central bank would promise to tolerate above-target inflation until prices reach the level they would have attained without the slump.
Raising inflation targets would reduce the frequency and severity of ZLB episodes. The Fed has failed to hit its 2% inflation target for the past five years, after all.
Before the crisis, economists used to dismiss fiscal policy as a recession-fighting tool. In 2013, the Fed announced it would begin reducing its asset purchases, despite low and falling inflation and an unemployment rate above 7%—conditions which might elicit a fiscal stimulus from an anxious government.
So fiscal and monetary policy would have to be closely co-ordinated—amounting, in all likelihood, to a loss of central-bank autonomy. A central bank that stood by as fiscal stimulus pushed inflation above its target has in effect relinquished its independence.
For a decade (more, in Japan) inflation and interest rates have limped along at historically low levels, even as government debts ballooned and central banks created piles of new money.

Why Some Scars From the Recession May Never Vanish

Why Some Scars From the Recession May Never Vanish

They point to the late 1990s as a period when low unemployment and strong demand for workers raised wages and attracted more people to the labor market.
But others are skeptical that a recovery, however strong, could draw back workers who have drifted so far from the labor market.
That is, the recession may have been what pushed people out of the labor force, but recovery alone may not be enough to bring them back.
“There are a bunch of people who were knocked out by the recession who aren’t coming back even in the places where unemployment has fallen,” Mr. Summers said, although he said he believed there is room for further improvement in the labor market.
Some research has pointed a finger at the federal disability system: Nearly two million more Americans are receiving federal disability payments than when the recession began in 2007, an increase that some economists argue is a reflection of the benefits’ use as an alternative to work.
A variety of evidence, including declining rates of entrepreneurship and falling job turnover, suggests the nation’s economy has become less dynamic and flexible since 2000, which could have made it harder for workers and companies alike to adapt following the shock of a recession.
And the recession may have accelerated trends that were already underway: Research from Lisa B. Kahn, a Yale economist, and a co-author has found that companies had, in effect, taken advantage of the recession to replace workers with machines.
That could carry a lesson for policy makers: If the United States no longer recovers as quickly from recessions as it once did, and if those slow recoveries can leave permanent scars on workers, then it is all the more important to kick-start the economy before too much damage is done.
Mr. Yagan’s research suggests that efforts by the Fed, Congress and the Obama administration to prevent that had not gone far enough.

Fears of Another Recession are Unfounded

Fears of Another Recession are Unfounded

. But not every market correction leads to recession.
So far in this recovery, people have shown none of this behavior. They have kept their spending in line with income, and though the level of debt has grown, it remains manageable relative to income and household assets.
Consumption levels have increased at a relatively cautious 3.4 percent a year during the past five years, only very slightly faster than the 3.3 percent annual rate of income growth.
Meanwhile the composition of income shows improved economic and financial health. Wages and salaries have outpaced other sources of income, growing more than 3.5 percent a year during this time.
To be sure, Federal Reserve (Fed) data show an almost 6.5 percent growth in household debt during just the last three years to a level of $15.2 trillion, long ago passing previous highs.
Against the relatively contained growth of household liabilities, Fed data show an almost 14 percent expansion in the assets owned by American households to some $111.4 trillion.
But apart from such understandably human inclinations, everything in the household sector— in overall terms, in the composition of its income sources, and in its finances—points to improved health and an ability to support spending and the economy going forward.

9 Stocks to Own for a U.S. Recession

9 Stocks to Own for a U.S. Recession

Investors seeking shares that can weather a recession that may come in the next three to four months should consider buying global stocks such as German vehicle maker Daimler AG; South Korean auto manufacturer Hyundai Motor Co. Ltd.; Japanese motorcycle maker Yamaha Motor Co. Ltd.; wireless provider China Mobile Ltd. (CHL ); French-based aerospace company Airbus SE; Swiss banking firm UBS Group Inc. (UBS); German electronics company Siemens AG (SIEGY); German banking giant Deutsche Bank AG (DB); and U.S.-based Newmont Mining Corp. (NEM), per Barron’s.
These picks come from independent investment management firm Creative Global Investments LLC (CGI), whose model portfolio of 50 global stocks has risen at an average annual rate of 20.6% since 2006, with no down years, per data provided to Barron’s by Carlo Besenius, CEO and chief global strategist of CGI.
By comparison, the S&P 500 Index (SPX) has generated an average annual total return (with dividends reinvested) of 7.4% over the same time period, Barron’s says.
What’s Attractive Many of these stocks are cheap or are in economies on the upswing, Besenius tells Barron’s.
While CGI has been negative on the auto sector since a year and a half ago, he thinks it’s now a good time to buy for large institutional investors.
He finds auto stocks to be cheap on the basis of price to cash flow, price to book, and price to sales.
Daimler, Hyundai and Yamaha, as noted above, are CGI’s top picks in this industry.
(For more, see also: The Impact of Recession on Businesses.)
Recession Besenius tells Barron’s that low U.S. unemployment figures have had a weak impact on consumer spending, and he expects a recession to begin in the next three to four months, perhaps earlier.
Interestingly, given this massive level of consumer and business debt, as well as the downward pressure on bond prices (which would increase yields) that should ensue as The Fed begins the anticipated unwinding of its $4.5 trillion balance sheet, he believes that the yield on the 10-Year U.S. Treasury Note could drop to 1.70% in the autumn.

Why Soaring Assets and Low Unemployment Mean It’s Time to Start Worrying

Why Soaring Assets and Low Unemployment Mean It’s Time to Start Worrying

The economic expansion is now entering its ninth year and in two years will be the longest on record.
To understand implied volatility, think of hurricane insurance.
As years go by without another hurricane, homeowners let their coverage lapse, insurers return and premiums drop.
Similarly, when unemployment got nearly this low in 1989 and again in 2006, a recession was about a year away; but in 1998, it was three years away, and in 1965, four years.
A narrowing spread between short-term interest rates and long-term rates comparable to the present has happened 12 times since 1962, and only five times did recession follow within two years.
When growth is steady and interest rates are low for years, investors and businesses behave as if those conditions will last forever.
That’s why even with muted economic growth, stocks are trading at a historically high 22 times the past year’s earnings. “A high proportion of companies won’t be able to pay back debt.”
The postcrisis regulatory crackdown means if asset prices fall, they probably won’t take banks down with them.
Last week Janet Yellen, the Fed chairwoman, said she thought there wouldn’t be another financial crisis “in our lifetimes.”