Is it happening again? Will there be a Recession?
January has been horrific for the U.S. stock market. The worst 2-week start of the year leads to some believing that 2016 will have consistently weak economic growth.
From Bloomberg:
Nobody knows what’s going to happen next. The fact that economists have a particularly poor track record of calling turning points in growth only adds to underlying anxiety
While all this is going on, the Federal Reserve has its finger on the interest rate trigger. The Federal Open Market Committee has already raised the federal funds rate target once, to a range of a quarter percent to a half percent.
Are turmoil in China and oil prices the main causes?
No recession here, tremendous one in China, kind of like Japanese lost decade
The probabilities for the U.S. industry to head into recession are very high - look at the monthly ISM Manufacturing Index, which has been below 50 for the third time in a row now
if your investment strategy is going to be ruined by a recession, maybe you have the wrong strategy. sure, the risks are heightened, but there's not a whole lot of ways to play a recession, as market declines usually come before a bad GDP number prints.
maybe hold some more cash because valuations have to come down (assuming you believe in mean reversion). that happens one of two ways: significant price declines or earnings growing faster than prices (obviously both is a possibility as well). we're not seeing significant earnings growth so you will probably see price declines (20% top to bottom wouldn't shock me at all, anything more than 30% would worry me). the question in my mind is will this be a prolonged bear like the tech bubble, or a minor hiccup in a long term bull market like 1990.
however, in specific stocks, there are opportunities. select stocks are already in their own bear markets (down 20% or more), so there are certainly some bargains to be had if you have cash on hand. just be prepared for them to get cheaper if we see the S&P go down 20%
I don't think there's going to be a recession. I think jobs will continue to open up, but not in tech and oil. I think the stock market may take a hit, but I think the economy will do fine.
Realjackryan's suspects for recession:
1) Extreme Dollar appreciation tied to central banking activities in the FED, Eurozone and China
2) Serious tech explosion. Tech has taken a hit and V C valuations have been suspect for a while, but if AAPL and the like see a 10% selloff, I beleive this will strongly trigger a recession.
AAPL is already down 10% YTD and down over 20% from its high. many stocks are in their own bear markets from the may-july highs.
are you saying 10% more of a decline? or did you miss that AAPL has fallen this year?
Good catch, sorry for lack of specifics. I see the recent selloff in the tech sector (2016) as a rational market correction. However, another 10% plunge in the same time-frame (6 weeks) would really show some serious fear in the market.
The more important part was point 1, the effects of a strong dollar in an economy with huge negative trade balances that "recovered" much to fast from the global recession which it caused, especially when considering the weakness in the Eurozone and the policies of it's central bank, the crippling economic sanctions against the ruble, and the constant devaluation and volatility in the Yuan. (I believe this is partially why China is pegging / unpegging the Yuan the USD (volatilty scares investors out of yuan flight to safety in USD)
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