Displaying items by tag: recession

(New York)

Gold has been doing well, and it is no surprise as to why. Both the economy and the trade war are having a bullish effect on gold, which has responded in line with investor fears. Additionally, worries over tensions in the Middle East and the protests in Hong Kong have offered a short-term boost to prices. Stephen Innes, managing partner at Vanguard Markets, says “Today’s price action suggests the market is not long enough gold, especially by historical standards, for this elevated level risk as investors have remained far too complacent to mounting risk in Hong Kong and the smolder explosive political powder keg in the Middle East”.

FINSUM: Gold has been in a bear market for so long that it had many times seemed to have lost its role in a portfolio. However, it appears to once again be finding its footing.

(New York)

Deutsche Bank is an uber dove. The bank has just come out saying it expects the Fed to make three full rate cuts before the end of the year. “Over the past month, downside risks to the outlook for the US economy and Fed have built”, said Deutsche Bank, continuing that a mix of different concerns, from the trade war to weak inflation, are pointing to “more negative outcomes”. Pimco thinks the Fed won’t cut this month, but that it may cut by 50 bp in July, saying “we wouldn’t expect Fed officials to wait for the economic data to confirm declining US growth — if they do, they could risk a more meaningful shock to economic activity”.

FINSUM: The odds of a downturn certainly seem higher than an upturn, which means the Fed is much more likely to cut than to hike. That said, three rate hikes in the next six months sounds a bit aggressive to us, especially because the Fed would want to leave some firepower if the economy really heads downward.

(New York)

The whole market is freaking out about the trade war. Between the yield curve inversion, plunging yields, and weakening economic indicators, investors are on bear market and recession watch. However, these worries are likely overdone, meaning the current market is a buying opportunity. There is little consensus that economic data is worsening and the economy is headed for a recession, but investors seemed compelled to believe this because the expansion is about to become the longest on record.

FINSUM: Investors seem to be feeling a sense of doom that has little basis in reality. There is no reason why the economy has to go south just because the expansion has reached a decade.

(New York)

Some of the market’s most important indicators are sending warning signs. Both oil and gold are trading in a way that has traditionally signaled that a big downturn is headed our way. Oil has fallen to near a bear market on concerns over growth, while gold has shot higher on the same worries. The extent of the moves is unique and has often presaged nasty movements in broader asset prices. In both the Dotcom bust and the Financial Crisis, oil and gold behaved similarly, so the question is whether they are sending the same message now. One market analyst noted, “Only three other times in history precious metals surged while oil plunged! All of them happened during severe bear markets and recessions … Buckle up, folks”.

FINSUM: It is odd to think that this has not happened more often as it is exactly what you would expect in times of anxiety about growth. Accordingly, this must be noted.

(New York)

The big bull market of the last decade is now coming to an end, according to Morgan Stanley. The bank says that the US market cycle has moved into a “downturn” phase for the first time since 2007. The bank says the change in its cyclical indicator adds to “a litany of downside risks we see for the markets”. The bank says the change of phase typically means a bear market is coming. The call on markets came in a report delivered to MS clients on Sunday and follows May’s big 6%+ drop in stocks.

FINSUM: In our view, it is a particularly hard time to make a call on markets. Things do seem to be worsening in the data, but most of the negativity is colored by the trade war, which could conceivably end abruptly. That hint of positivity aside, it seems best to be positioned defensively.