Saturday, February 06, 2016

Economic Slowdown or Recession?

Most economists seem to think the U.S. economy is just slowing down, but not heading towards recession.   However, the stock market seems to be forecasting a recession.

So which is it?

On one hand, the data indicates a slowing, but still positive, economy.   No contraction of GDP is sight yet.

However, individual stocks seem to be portraying a different situation.   Many stocks have been falling several months, with some down as much as 90% (e.g. oil and materials sector stocks).  Even the previous market leaders, technology and health care.  For example, Netflix is down about 38% from its all time high in December 2015.    Amazon is down about 28% in the same time frame.  Yesterday, Linkedin and Tableau both fell about 45% after disappointing earnings.

Either the stocks were extremely overpriced for perfection, or the economy is headed for a recession.
I think we are at an inflection point.   If the market continues lower, a recession is likely coming.  If the market demonstrates a major reversal in the next couple weeks, a slowdown could be the  explanation.

For now, I continue to remain cautious, waiting for market to show a clear direction.

Disclosure:  We own shares of Netflix.

For more on Reflections and Musings, check back every Saturday  for a new segment.

This is not financial advice. Please consult a professional advisor.

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