Displaying items by tag: recession

(New York)

One of the biggest banks in the country has just offered a very bullish view. BAML says the US will avoid a recession. The comments come from the bank’s CEO, Brian Moynihan, who believes that growth will slow, but then flatten out and not go into a recession. “Everything we see in our customer base is consistent with a slowdown to 2% and a flattening out from there”, he says.

FINSUM: We found these comments to be genuinely interesting because BAML has a view on the economy that few do. Not only are they the largest consumer bank, but also the biggest mortgage lender. That means they can watch the pace of deposit growth and borrowing in a very direct way, and thus can take the economy’s pulse.

(New York)

If you could time travel back to December, it would be hard to find anyone in the world that would have thought that six months later, ten-year Treasury yields would be back under 2%. The turnaround has been so stark and so dramatic, that it is hard to fathom. The yield is now at its lowest level since 2016, with investors fearful of the economy and anticipating several Fed rate cuts.

FINSUM: The big question is what this means. Consider that the yield curve has been inverted for over 90 days. This seems like a very clear recession signal, yet economic data continues to hold up.

(Washington)

There was a lot of anxiety yesterday about what the Fed might do. The big banks were taking the opposite side of markets, saying that the pace of rate cuts that investors expected were unrealistic. Then Fed chief Powell spoke and it became clear that markets were right, the Fed is completely dovish and has fallen in line with investor expectations. Powell signaled that rate cuts were on the immediate horizon, which has led markets to up their odds-making of a rate cut in July to 100%.

FINSUM: Powell was about as dovish as a central banker ever gets short of the middle of a crisis. For us this is quite an unusual situation—an economy doing well with both of the Fed’s dual targets being met, yet there is an undeniable sentiment towards cutting rates.

(New York)

There is a lot riding on the results of the Fed’s meeting this week. Every big bank is weighing in and the consensus is that the markets have gotten too dovish in their projections and that the Fed won’t cut now, or as quickly as investors expect, all of which will lead to a decline in stocks. Both UBS and Goldman think that the pace of rate cuts forecasted by markets would only make sense in a recession, which seems unlikely. Morgan Stanley says stocks are very vulnerable to a decline if the Fed doesn’t cut as it will shift expectations and lead to tighter conditions. JP Morgan thinks equities will decline even if the Fed does cut.

FINSUM: We think the Fed will stay on hold for now but signal cuts in the Fall. We expect this will have a neutral to mildly negative effect on share prices.

(New York)

Whether investors like it or not, a recession is coming. One of the key indicators is for a yield curve inversion to last 90 days or more. If it does so, a recession is highly likely in the next 12-18 months. Well, the first point of inversion began in March and we just crossed the 90-day threshold, which means that the strongest indicator of recession has just been triggered. Here are some tips to prepare: clear out garbage holdings from your portfolio (e.g. the stock tip from your brother in law six months ago), set aside cash and come up with a plan to buy stocks when certain thresholds are hit (e.g. a 25% decline in key indexes), pay down debt (it might not be this easy to do so again for awhile).

FINSUM: For all the talk we have heard over the last year about “this time is different”, the reality is that the strongest recession indicator known has just been triggered.