Are We Headed for a Recession or Not?
If you listen to the mainstream financial media these days you would think the U.S. economy is already in recession. Or at least heading into the tank on the double-quick.
The doom-and-gloomers are out in force, working overtime to convince investors that the end-is-here!
Consider this recent headline from Bloomberg: “14,889,930,106,608 Reasons to Fear Recession”
I’ll spare you the intrigue here. That 14-digit number in the headline above refers to the amount of wealth that vanished from stock markets worldwide last year.
Talk about confusing cause with effect!
Sure, global investors are roughly $15 trillion poorer now than they were at the market’s peak last year.
But the 20%-plus decline in global stocks doesn’t guarantee that a recession is sure to follow. Far from it, in fact.
Here’s the Truth
If you take a closer look at the historical data of the U.S. economy and stock market, you’ll find the S&P 500 Index has declined 20% or more nine times since 1929. This without the economy going into the tank.
That’s right, out of 20 stock market declines of 20% or worse over the past 80 years, the U.S. economy has managed to steer clear of recession roughly HALF of the time.
Far from the near “certainty” the financial media like to portray it as. The odds of a recession are barely more than 50-50.
Here’s the good news…
If last year’s stock market decline is NOT accompanied by a recession, then the worst of the selling is most likely over already.
The average market decline when the economy goes in the tank is a steep 42%.
The average length of a market decline when recession strikes is 17 months, or roughly a year and a half.
By contrast, the average stock market decline when the economy avoids recession is 29%.
The average length of the decline is just 12 months. So if stock markets peaked worldwide in January 2018, then last year’s stock market decline may have ended already, since 12 months have passed.
Even if we are destined to match the average nonrecession decline of 29%, stocks should only slip another 8% before the worst is over.
The reality is many other stock markets fell much more than the U.S. market. For instance, the MSCI EAFE Index of developed markets declined 24.6% last year. The MSCI Emerging Markets Index declined a spine-tingling 27.8%.
That’s more than enough pain to qualify as bear market over, in my book.
In Friday’s Wealth Watch, I’ll take a deeper dive into the indicators I’m watching now to signal whether a recession may be ahead or if we’re now in the clear.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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