We Need to Talk About the Recession - MB 10/07/19

ECONOMY We Need to Talk About the Recession

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Because these mixed messages are making it really hard to define the relationship. The labor market remains strong and low interest rates have helped stocks—but recent weak economic data has some investors questioning how long this decade's expansion will stick around. The red flags: Stocks are currently working on the worst start to a quarter since 2016. Last week, ISM said the U.S. services sector grew at the slowest clip since August 2016, while September’s manufacturing reading was the worst in a decade. That’s chilled sentiment among execs, who definitely don’t mean it when they say “I’m fine.” Last month, a Duke survey found optimism among CFOs was at a three-year low. Plus... One Fed Bank of New York measure currently suggests there’s a nearly 40% chance of a recession over the next year, the highest likelihood so far in this bull market.  A Bank of America Merrill Lynch survey recently showed recession concerns at the highest point in a decade.  But we haven’t hit dealbreaker territory yet. September’s jobs report wasn’t the best, but it still 1) showed the economy adding jobs at a steady rate 2) confirmed unemployment is near multi-decade lows and 3) always takes out the garbage. We’re still playing wait and see: Earnings season kicks off next week—analysts expect earnings to have fallen about 4% in Q3. They’ve also lowered expectations for all 11 sectors in the S&P. The Fed could buoy markets with another rate cut at its meeting later this month. Investors are penciling in up to two more rate cuts through December, and you can thank Powell & Co. for a big chunk of the stock market’s gains this year. The takeaway: Most economists and four out of five dentists agree that the eventual nosedive won’t be as gnarly as the financial crisis. But it will happen...the question is when.