Is a Recession Looming?

Firstly a Happy New Year to you…

It is worth noting that I am a positive person but one without blinkers, a positive realist you might say, and this is not one of those articles crying ‘the end is nigh’, I am purely writing this to highlight what we have witnessed over the last year or so and my opinion on what we may witness in the coming months or even years and would welcome your view.

The US Indices hit all-time highs in October with the FTSE’s high in May and the Dax even earlier in January. Declines have been seen across the board since then with the worst move occurring in the last 3 months of the year. The S&P ended the year almost 20% off its highs in the end. Quite a change in sentiment especially over Christmas time where 8 out of 10 years sees a ‘santa rally’. You could have argued profit taking was all that we were seeing but a decline of this size seems to be more than that, so let us look into this a little deeper:

  • Worst thanksgiving week in 7 years, we usually see a positive market all being well.
  • Dow’s worst ever Christmas Eve session falling 2.9% in its half day of trading, smashing the 1918 Christmas Eve record decline of -1.1%.
  • Apple was off over 30% since October, a recent barometer of how well the market is doing.
  • Crude Oil crashed by 45% in the last 3 months, one of the biggest historical declines.
  • Gold was up over 10% over the same 3 months, another highly reliable sign of market fear and money moving to safety.

So those were some market facts, there is then the political background to look at where we have US and China Trade wars getting ever more heated, Brexit uncertainty and numerous European government ‘no confidence’ votes with some parliaments completely dissolved. A US government shutdown that at the time of writing is the 2nd longest shutdown in US history at 18 days and a US president going to war publicly with his own Federal reserve.

As mentioned, these are just the facts at this moment and a small rally has been seen but technicals were oversold so a reactionary value play was likely. Perhaps all of the economic turmoil will sort itself out but there seems to be a lot more to fix than usual. Several will argue that economic indicators actually show relative health but this health has been based on extremely low interest rates, very cheap credit and a seemingly unlimited debt supply for a long time now and the shifting of this base is already visible.

Many have argued of late that all of the above has been adding up to a likely recession, but scaremongering is a great past time for analysts with an agenda so even though the above information doesn’t look great, let us look at interest rates to help finish off the picture.

Currently demand for long term interest rates is much higher than short term interest rates (long term interest rates are being locked in now) which denotes that the bond markets view long term rates as declining in the coming months/year. Not what you would expect to see when the Fed has recently started raising interest rates, so a change in policy is expected. Such a turnaround would be quite reactionary and only likely to occur if there were to be a recession and to back this, the Fed have forecast a fall in GDP over 2019 and 2020.

So perhaps not an ideal backdrop for market stability with a lot of uncertainty and volatility seen, and yet to come no doubt, but being aware of this information can only help with your investment decisions. This also makes for a great environment for traders as increased volatility just gives more entry and exit points with which to make potential profits from. Yes a higher degree of caution may be needed along with a Broker that offers the potential to make money when the market goes both North or South. Tradeview’s MT5 is the only on exchange stocks offering to allow shorting with all borrowing capabilities taken care of so well worth looking in to whether you are a single investor or a firm looking to offer this product out to your clients. With FX, Indices, Commodities, Stock CFD’s and Cryptos, Tradeview can offer products and instruments for all market conditions so try our demo by clicking here or contact us at asaward@tvmarkets.com for more information.

Adam Saward

 

Adam Saward
Head of UK Business Development
asaward@tvmarkets.com