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Sat Jan 20, 2018, 01:00 AM

Trouble ahead? What 4 recession indicators say about the economy

A recession doesn’t appear imminent, but the U.S. may be entering the late part of the economic cycle

After a stellar 2017 on Wall Street, many investors have resigned themselves to the idea that future returns might look a lot less exciting than what’s been experienced in recent years.

The S&P 500 SPX, +0.44% is looking at a gain of about 20% for the year, its best year since 2013, and that rally has raised some concerns about the market being overvalued. By one analysis, U.S. stocks are more expensive than other closely watched markets like Europe or emerging markets—which don’t look particularly cheap themselves—and based on the relative strength index, or RSI, the S&P is at its most overbought level in 22 years. RSI’s are one measure of asset-price momentum.

Read more: Stock optimism swells as S&P 500 hits most overbought level in 22 years

However, there is a difference between meager—or even negative—returns and a recession, sometimes technically defined as two consecutive quarters of economic contraction. (Economic growth has averaged 2.5% in the first three quarters of 2017.) While the bull market may struggle in 2018, and volatility is expected to rebound from record-low levels, the good news investors is that such an economic contraction doesn’t appear to be on the horizon.

Austin Pickle, an investment strategy analyst at Wells Fargo Investment Institute, named four “recession indicators,” that can help predict whether the economy might be headed for a downturn. “Currently, they are all in agreement, with data signaling that another U.S. recession is not imminent,” he wrote in a note to clients.

The four indicators include: the stock market, the ratio of copper prices to gold prices, the yield curve, and an index for leading economic indicators.

1). Rallying stocks



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Reply Trouble ahead? What 4 recession indicators say about the economy (Original post)
Quixote1818 Jan 2018 OP
kurtcagle Jan 2018 #1

Response to Quixote1818 (Original post)

Sat Jan 20, 2018, 02:46 AM

1. Recession will come about nine months from now.

The market bears an eerie resemblance to June 1999. Employment seems to be "relatively" strong, but in a number of sectors, you're seeing churn, where layoffs are taking place more and more frequently with longer periods between re-employment. Speculators are jumping into risky investments (Bitcoin anyone?), while early stage VC has been drying up for awhile now, all of which indicate that there are fewer real opportunities for investors to get good returns from less risky ventures.

I remember being at a tech conference in Nov 1999 where I was warning people that tech market was on the verge of collapsing. There were a lot of angry people afterwards, but I do remember one or two contacting me about a year later who said they took my warning to heart and pulled out of the markets, and were glad they had. This may end up being a rout for the Republicans - going into the midterm elections with a highly unpopular president, a government shutdown, that abomination of a tax "relief" bill and an economy teetering on the edge of recession is NOT a good place for a majority incumbant to want to be.

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