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.
Copyright © 2016 Achievement Catalyst, LLC
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