There’s a nearly 40% chance of a recession… the question is when.
Mixed messages are making it really hard to define, but it does look like a recession is on the way. 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 continue.
Stocks are currently having their worst start to a quarter since 2016. Last week, ISM said the US services sector grew at the slowest clip since August 2016, while September’s manufacturing reading was the worst in a decade.
That news has 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 Federal Bank of New York measure currently suggests there’s a nearly 40% chance of a recession over the next year, the highest probability so far in the current bull market.
Furthermore, a Bank of America Merrill Lynch survey recently showed that recession concerns are 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, and 2) confirmed unemployment is near multi-decade lows.
As such, we’re still playing wait and see.
Earnings season kicks off next week with analysts expecting them to have fallen about 4% in Q3. They’ve also lowered expectations for all 11 sectors in the S&P.
Nevertheless, 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.
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.