Is The Stock Market Swoon Foretelling Recession?

Investors Business Daily ^ | 01/11/2016 | Robert Samuelson

[expat_panama]

It's hard not to wonder: Is the stock market telling us something? True, the market's record in forecasting recessions is horrendous. Stocks often move according to whim or fad. But just because the market is wrong much of the time doesn't mean it's wrong all the time.

Could last week's turbulent trading be one of the times it's right?...

Behind this chain reaction is a huge transfer of economic power from advanced countries (mainly North America, Europe and Japan) to "emerging-market"...

The trouble is that their growth is slowing...

One is high debt levels...

The other problem is the legacy of the boom in commodities --oil, grains, metals...

The China bubble has popped. Price indexes have dropped...

Here's the picture that emerges: Over-borrowing has decelerated growth in many emerging-market countries. To offset that, China may be devaluing its currency -- the yuan -- to improve the competitiveness of its exports. In advanced nations, growth seems stuck between 1% and 2% a year.

With so much weakness, the world economy is vulnerable...

There are skeptics....

...Very little of the labor market is connected to the rest of the world through trade."

Exports constitute only 13% of U.S. GDP; the other 87% reflects domestic demand. In December, payroll employment expanded by a strong 292,000...

Large losses could cause a negative "wealth effect": When people feel poorer, they spend less (similarly, when they feel richer, they spend more)...

To the crucial question -- does the market foretell a recession? -- there's not yet a conclusive answer. How much China slows and how the rest of the world responds are open issues. American stocks may have overreacted. Whatever happens, this is not your father's business cycle.

[expat_panama]

The wealth question is that answered by the fact that in the U.S. average real per person wealth is at an all time high.  Well, actually, it's just barely higher than it was over a decade ago and this is after 8 years of squallor.  Some 'wealth'.  The more important question is weather stock market prices mean anything to the vast majority of the U.S. that does not earn a living in the financial sector --and the answer is absolutely.

The debate is over "why",  It may be this 'wealth effect' that when stocks go up we get richer.  It may also be that when folks don't buy stocks they're not investing and that means businesses can't get going.  The other possibility is that stock traders can see the future and are simply reading the writing on the wall...

[expat_panama]

Good moring campers after yesterday's "upside reversal in rising volume"-- wow, soo many big words that don't make sense.   English translation: stocks flat.    Right now futures traders see things mixed/flat w/ stocks but CRASHING w/ everything else:

Only report todays is JOLTS - Job Openings (maybe someone here can explain what that is...).  News:

China, oil still hanging over Wall Street Overnight news will likely again be key for stock market action Tuesday, as Wall Street will be watching China for any further weakening in the yuan.

Oil prices plunge, and the bottom is not yet in sight! Economic Times - 4 hours ago By Jad Mouawad The continuing collapse in commodity prices pushed oil futures still lower Monday, and analysts predicted that the slide was far from over.

Yes, the Stock Market Will Crash, but Only After This Brief Rally The S&P 500 stock market index (^GSPC) is headed for its worst slide in years, but it will only come after a brief rally. Here's why. TheStreet.com

We're Entering "Irrational Pessimism" Period - David Rosenberg, Nat'l Post
RBS Advising Clients 'Sell Everything' - Ambrose Evans-Pritchard, Telegraph
Investor's Need Be Wary of Irritable Anecdotes - Cliff Asness, AQR Capital
The Great Benefit Of a Falling Stock Market - John Kimelman, Barron's

 

 

[pieceofthepuzzle]

Did the recession ever end? It's hard to know the truth, because IMHO one cannot trust the numbers. What sector is going to lead a comeback, by the way?

The tech sector has tons of competition, and people are becoming saturated with gadgets (plus with another downturn in the economy won't be in the position to keep updating the technology they own).

The biotech/pharma/medical device sectors are all reeling a bit from regulation and taxes (which is why Pfizer merged with Allergan - to avoid US taxes).

Auto? Not a likely candidate.

Manufacturing? Of what?

[alloysteel]

The stock market, in many instances, is a TRAILING indicator, not especially good at predicting trends. And the recent policy of the Federal Reserve to prop up the stock averages, dating from the TARP bailouts (which enabled money to be artificially transfused to the stock market), only deferred the inevitable, when again the prices would crash, catastrophically, and finally make real to the investors and the nation at large, just how shaky the economic infrastructure had become.

“Too big to fail”? Who ever came up with that meme? It is not “failure”, it is demolition work, and allowed to proceed along its natural fault lines, the wreckage may cleared away just that much quicker. But no, the “fixers” hastily threw up all sorts of props and braces to keep the few remaining walls from tottering and falling, preserving the facade, but actually also preventing any real reconstruction.

[wrench]

” IMHO one cannot trust the numbers. “

Forced spending on 0bamacare is counted as “Consumer spending”. Next they will include other taxes in the figure to show how robust the economy is.

[Ghost of Philip Marlowe]

You are correct.

The equities markets are no longer indicators of the health of the economy. They have become nothing more than trailing indicators but not of the economy, of the optimism/pessimism of investors based upon what the Federal Reserve is saying and doing.

I’ve been compiling screen caps of the DJIA spikes and pits with headlines indicating what the Fed may or may not say on a given day, what the Fed says, what actions the Fed takes.

The DJIA in particular is a joke. When “investors” are not buying or selling based upon the diktat from the FR, the algos and HFTs are running wild taking advantage of ZIRP.

And the VIX, by the way, is NOT an indicator of the weakness of the equities markets. The VIX is nothing more than a reverse graph of whatever happens in the equities markets and, as such, has become a trailing indicator of the markets, and really serves no purpose in forecasting volatility. All you have to do is look at the other indices to see where the volatility HAS BEEN.

[kearnyirish2]

The recession certainly never ended here in the northeast; plenty of employers still leaving and foreclosed homes for sale.

This is just part of fabricating fake accomplishments for a fake president.

[Ghost of Philip Marlowe]

The short answer is, “No.” It didn’t. It’s hard to know the truth because the state-run economic propagandists on the state-run media spew lie after lie and the government backs up their lies with lies.

The fact that the DJIA rose 11,000 points from its 2008 lows — when there was enough hard evidence of any economic growth, only the Fed lowering the interest rates and flooding the primary banks with play money to invest in the markets — is probably one of the greatest financial frauds in history.

If you doubt, just ask yourself this:
At what realistic rate do you think the economy grew every year since 2008 (if at all)? 1%? 2%? 3% (I’d say it didn’t, but what is the highest you can reasonably argue??

By what percentage did the DJIA grow over that same period (from 6500 low to its high of 18,200)?

Is there a difference between the two?

That difference represents three facts:
1. The markets do not indicate economic health but simply investors’ attempt to turn a quick profit.
2. The cheap money and QE is what created that growth.
3. The difference between the two represents the minimum % of “bubble” in the equities market.

[outofsalt]

2nd amendment metals are up!

[wrench]

Lead and copper are down hard in the last 12 months.

[dynoman]

You forgot - the stock market swoon exists in Trump’s desperate imagination only. It’s not real. I read it here on FR so it must be true.

[Darksheare]

The Obama depression never ended.
The market will crash.
How, when, and why is still speculative.
But this will be...interesting to watch play out.

[palmer]

Exports constitute only 13% of U.S. GDP; the other 87% reflects domestic demand.

They make it sound like that is a good thing.

[HotKat]

My sentiments exactly!

[Chode]

In December, payroll employment expanded by a strong 292,000...

ya GOTTA be kiddin me!

[Roman_War_Criminal]

Retailers are dying. This is going to be an ugly year.

[expat_panama]

87% reflects domestic demand.

They make it sound like that is a good thing.

Huh.  Somehow I thot they were just presenting facts and leaving that "good" and "bad" stuff to us.  So what's you're take, is 87% good or bad --and why would you see it making any difference?

[Jumper]

Exports, if actually up to 13% of the US economy is a big deal... Historically, it has been 10% or less so even a 3% drop back to historical levels would have ramifications inside the US (labor markets, stock markets, Fed Reserve planning, State/Federal tax revenue, etc.). The country will suffer a corresponding global drop in valuation, and the banks under the G20/G9/G7 and Reserve Banks will manage this drop in economic activity. Maybe this is how the Fed gets the printed money out of the US and World Economy?

[expat_panama]

will be...interesting to watch play out.

Yeah I agree.  That's an old Chinese saying isn't it?  That if you're going to be beaten stabbed and robbed and you can't do anything about it you may as well just relax and enjoy it.

[r_barton]

The Stock Market is so manipulated (by the Gov’t and Big Money). You might as well go to a casino and predict the economy by watching their crap games.