facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog search brokercheck brokercheck
%POST_TITLE% Thumbnail

"We've long felt that the only value of stock forecasters is to make fortune tellers look good." Warren Buffett

As we approach the New Year it seems most news about the economy is being driven by fear of a recession and a bear market in U.S. stocks...



“We've long felt that the only value of stock forecasters is to make fortune tellers look good.” -  Warren Buffett

As we approach the New Year it seems most news about the economy is being driven by fear of a recession and a bear market in U.S. stocks.

Of course no one can reliably predict bear markets.  We did come very close to an official bear market measured by the S&P 500 on Christmas Eve.  NASDAQ is officially in “bear” territory along with the Russell 2000.  Bear markets do not require nor necessarily mean a recession. 

For a bear market to be “official,” the S&P 500 must close more than 20% below its cyclical peak. Other indices like the Russell 2000 and the Dow Jones Industrial Average are considered too narrow in scope to reflect the broader characterization of the market.  There will always be smaller segments of the total market that will be doing better or worse than the S&P 500.   Like all averages, there are exceptions.  But for the purpose of calling a bear market, only the S&P 500 matters. 

The most important questions remain: Will there be a bear market and will there be a recession?

It is not my custom to make forecasts but I will venture an opinion about what we should expect. 

Since the S&P 500 has already declined by more than 20% intraday on December 24, an official bear market is likely.  Remember it is a technicality keeping us from saying so now because Christmas Eve stocks rallied from their lows preventing a close more than 20% lower. 

A more difficult question is: Will there be a recession?  My view is no.

At Curran Investment Management we have used the Aruaba-Diebold-Scotti Business Conditions Index [ADS Index] to gage the health of the economy.  It is a measure of the following:

                Weekly initial jobless claims

                Monthly payroll employment

                Industrial production

                Personal income less transfer payments

                Manufacturing and trade sales

                Quarterly Real GDP

The Federal Reserve Bank of Philadelphia updates the ADS Index following each report of the economy included in the Index.

In the past the ADS Index has always declined before and/or during each of the recessions beginning in 1960.  There have been eight recessions since 1960. There are no exceptions to its performance before and during recessions.

Currently the ADS is positive and is showing no sign of faltering.[i] Of course it could change.  But for now we believe the economy is strong enough to sustain growth. There are signs of a slowdown but there are no indications of a breakdown. 

For now the market is correcting and it is likely there will not be a recession in the first quarter of 2019.

Best wishes for the New Year!

[i] Source of Graphs:  https://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index

Please check with your tax advisor, your Curran Wealth relationship manager, or contact Curran Wealth Management if you have any questions.  
518.391.4200
info@curranllc.com

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness. It is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  CIM, LLC does not provide tax or legal advice.  No one connected with CIM, LLC can ensure tax consequences of any transaction.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.