### Summary
The US economy and markets appear to be in good shape, with a strong stock market, low inflation, and low unemployment. However, there are potential risks on the horizon, including the impact of the Federal Reserve's monetary tightening, supply and labor shocks from the pandemic, political polarization, and the possibility of another government shutdown. While the overall outlook for investing remains uncertain, it's important for investors to prepare for any eventuality.
### Facts
- The US stock market is close to its 2022 peak, inflation is less severe than a year ago, and the economy remains strong with low unemployment.
- The Federal Reserve has raised interest rates by 5 percentage points, which could lead to economic growth faltering.
- The US economy is facing supply and labor shocks from the pandemic and commodity shortages caused by Russia's war with Ukraine.
- Falling prices in China could contribute to disinflation in the US and elsewhere.
- Political polarization in the US and the possibility of another government shutdown could negatively impact the economy and markets.
- Despite the resilience and stability of the economy and markets, there are still risks to consider, including a crisis in commercial real estate and the potential for inflation to flare up again.
- Some economists and surveys predict a 50% probability of a recession occurring within the next 12 months.
- Investing should be based on a long-term outlook and a diversified portfolio, with cash on hand to cover expenses.
Note: Due to the nature of the text provided, some of the facts may be subjective or based on the author's opinion.
### Summary
📉 Americans could run out of savings as early as this quarter, according to a Fed study. Excess savings are likely to be depleted during the third quarter of 2023.
### Facts
- 💸 As of June, US households held less than $190 billion of aggregate excess savings.
- 💰 Excess savings refer to the difference between actual savings and the pre-recession trend.
- 🔎 San Francisco Fed researchers Hamza Abdelrahman and Luiz Oliveira estimate that these excess savings will be exhausted by the end of the third quarter of 2023.
- 💳 Americans are using their credit cards more, accumulating nearly $1 trillion of debt.
- 📉 The downbeat forecast raises concerns about the US economy as consumer spending is crucial for growth.
### Summary
The US economy is forecasted to grow at a rate of 5.8%, causing concern for the Federal Reserve and those hoping interest rates will remain low.
### Facts
- 🔥 The US economy is predicted to grow by 5.8% according to the Federal Reserve Bank of Atlanta.
- 💸 Recent strength in retail sales, auto sales, housing starts, and industrial production have contributed to this economic forecast.
Over half of U.S. small business owners believe the economy is already in a recession, though their own financial conditions remain strong and they have less concerns about the health of their banks, according to a survey by the National Federation of Independent Business.
Despite initial predictions of a recession, the U.S. economy has experienced unexpected growth, with high consumer spending and continued borrowing and investment by businesses being key factors.
Recent profit reports from companies such as Amazon, Walmart, and Home Depot, along with other consumer statistics, indicate that the case for a 2023 recession is weakening, as the consumer economy shows resilience with rising real incomes, substantial savings, and continued spending in sectors like automobiles and services.
Despite the optimism from some economists and Wall Street experts, economist Oren Klachkin believes that elevated interest rates, restrictive Federal Reserve policy, and tight lending standards will lead to a mild recession in late 2023 due to decreased consumer spending and slow hiring, although he acknowledges that the definition of a recession may not be met due to some industries thriving while others struggle.
A global recession is looming due to rising interest rates and the cost of living crisis, leading economists to warn of a severe downturn in the post-Covid rebound.
The U.S. housing market is currently experiencing a decrease in affordability due to high mortgage rates and stubbornly high prices, with affordability levels lower than during the 2006 housing bubble; however, experts do not predict a crash in the market due to a shortage of homes and a more stable lending environment.
Stocks are overvalued and a recession is expected in the first half of next year, according to economist Steve Hanke. He predicts that inflation will cool, Treasury yields will fall, and house prices will remain stable.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which may lead to softer consumer spending and sideways movement in the stock market for the rest of the year, according to experts. Additionally, the resumption of student loan payments in October and the American consumer's credit card debt could further dampen consumer spending. Meanwhile, Germany's economy is facing a recession, with falling output and sticky inflation contributing to its contraction this year, making it the only advanced economy to shrink.
The U.S. economy has shown unexpected strength, with a resilient labor market and cooling inflation improving the odds of avoiding a recession and achieving a soft landing, but the full effects of rising interest rates may take time to filter through the economy.
Economist David Rosenberg warns that the US is likely to enter a recession within six months due to the deterioration of credit quality, reminiscent of the 2008 mortgage crisis.
The S&P 500 had a good week, rising 2.5% and coming 1.6% below the 2023 high-water mark set in July; however, there is a possibility of a recession if the Fed keeps rates high for longer than necessary.
Deutsche Bank strategists warn that the U.S. economy has a greater chance of entering a recession within the next year due to high inflation and the Federal Reserve's aggressive interest rate hike campaign.
The odds of a recession in the US have collapsed, making markets vulnerable to any signs of the economy overheating and contributing to inflationary pressures.
Consumer spending has remained resilient, preventing the US economy from entering a recession, and this trend will likely continue due to low household debt-to-income levels.
The US consumer is predicted to experience a decline in personal consumption in early 2024, which could lead to a potential recession and downside for stocks, as high borrowing costs and dwindling Covid-era savings impact household budgets.
The US economy is facing a looming recession, with weakness in certain sectors, but investors should not expect a significant number of interest-rate cuts next year, according to Liz Ann Sonders, the chief investment strategist at Charles Schwab. She points out that leading indicators have severely deteriorated, indicating trouble ahead, and predicts a full-blown recession as the most likely outcome. Despite this, the stock market has been defying rate increases and performing well.
There are indications that a severe economic contraction may be approaching in the US, with a significant decline in home sales and rising interest rates, similar to the 2008 financial crisis, according to Bloomberg analyst Mike McGlone.
The odds of the U.S. entering a recession by mid-2024 have decreased, but certain regions, such as the West and South, are still more vulnerable due to rapid economic growth, high home prices, and inflation, according to Moody's Analytics. However, a severe downturn is unlikely, and the Midwest and Northeast are less susceptible to a pullback. Overall, the chance of a recession has declined nationwide, but there is still a risk for some metro areas, such as Austin, Boise, Ogden, and Tampa.
Despite economists giving the all-clear on a recession, there are still several red flags suggesting a downturn may be imminent, including an uncertain economic outlook, declining consumer confidence, maxed out credit cards, tightening credit conditions, maturing corporate debt, a manufacturing slump, global economic challenges, an inverted yield curve, and sticky inflation.
Economist Gary Shilling predicts that the S&P 500 will decline by around 40% during this market cycle, citing recession indicators such as the yield curve and The Conference Board's Leading Economic Index. He believes that a US recession may already be underway due to the Federal Reserve's focus on reducing inflation, and high valuations in the stock market increase the likelihood of a significant drop.
Entrepreneur Jaspreet Singh warns that signs of a potential recession in America include labor shortages, inflation-driven spending, and high interest rates, with economists predicting that the country may start feeling the effects of a recession by the second quarter of 2024. Singh advises Americans to educate themselves about saving money and investing to prepare for the possible downturn.
The housing market is facing challenges due to high mortgage rates and low home sales, leading economists to predict a mild recession in 2024.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
The forecasted U.S. recession in 2024 is expected to be shorter and less severe than previous recessions, with the economy's interest-rate sensitivity much lower due to reduced leverage and elevated savings from the postpandemic environment, leading investors to consider positioning for investment opportunities that will drive markets into 2024.
A drop in savings among Americans and record credit-card debt could have disastrous consequences for the economy if a recession occurs, as data shows personal savings rates remain historically low and many Americans have less than $5,000 in savings.
Economist David Rosenberg has not yet seen his recession prediction materialize, as the US economy has shown strength and resilience; however, he still believes a downturn is imminent and suggests investors focus on defensive sectors such as consumer staples, healthcare, telecommunications, and utilities. He also recommends considering long-term bonds as the best risk-reward prospects in fixed income.
The Canadian economy has entered a long-delayed recession due to highly indebted households, overvalued home prices, and a slowdown in consumer spending, with the recession expected to last until the first quarter of 2024 and result in a 1.5% decline in GDP and an increase in the unemployment rate to 7.2%.
The US economy has triggered the fourth and final signal for a potential recession, and historical data suggests that recessions will become more frequent in the future due to government interventions and other factors such as inflation, tightening monetary policy, oil price spikes, and tight government budgets.
There are four risks that could potentially push the US economy into a recession sooner rather than later, including a weakening labor market, headwinds for the consumer, high borrowing rates, and the rising chances of a government shutdown, according to Raymond James.
Consumer confidence in the US fell for the second consecutive month in September 2023, with the Expectations Index dropping below the recession threshold, reflecting concerns about rising prices, the political situation, and higher interest rates. Assessments of the present situation were relatively unchanged, while expectations for business conditions, job availability, and incomes declined. Concerns about the current and future financial situation of families also increased.
The recent surge in long-term interest rates, reaching the highest levels in 16 years, poses a threat to the US economy by putting the housing market recovery at risk and hindering business investment, as well as affecting equity markets and potentially slowing down economic growth.
Deutsche Bank's economists are still predicting a US recession despite the ongoing resilience of the economy, pointing to rapidly rising interest rates, surging inflation, an inverted yield curve, and oil price shocks as the four key triggers that historically have caused recessions and are currently happening.
Experts are divided on the future of US home prices, with some predicting a surge and others expecting a decline, as homeowners are reluctant to sell their homes with cheap mortgages and buyers are hesitant to overpay. Jeremy Grantham believes prices will come down by 30%, while Barbara Corcoran predicts a surge of 15% to 20% once interest rates decrease. David Rosenberg forecasts a recession and a potential 25% plunge in house prices, while Glenn Kelman believes the housing market has hit rock bottom. Vincent Deluard expects prices to drop when homeowners eventually sell.
The S&P 500 closed out the quarter with a 3.6% loss, attributed to factors such as rising interest rates, a slowing housing market, and businesses preparing for tough times, resulting in a slow decline in stocks. Additionally, the resumption of student loan payments and expectations of more rate hikes from the Federal Reserve are expected to impact consumer spending power and business cutbacks. However, as the year comes to an end, traders and investors may look forward to 2024 for possible rate cuts and a return of strength in the market.
Falling bond prices in the US, resulting in higher Treasury yields, suggest that a recession might be approaching, according to investor Jeff Gundlach, who is closely watching the upcoming jobs report for further signs.
Falling U.S. bond prices and the rapid normalization of the Treasury yield curve are signaling that a recession may be imminent, according to DoubleLine Capital founder Jeff Gundlach, who will be closely monitoring the September jobs report for further clues.
The likelihood of the US avoiding a recession has decreased, as two factors, including a surge in interest rates and the potential for resurgent inflation, could push the economy into a downturn, says economist Mohamed El-Erian.
Bank of America economists warn of upcoming turbulence in the housing market due to high mortgage rates, comparing the current situation to the housing market of the 1980s rather than the crash of 2008, but they do not expect another housing crash like 2008 due to differences in housing development, mortgage debt, and legislation.
The U.S. economy is showing mixed indicators, with rising interest rates, high inflation, and increased consumer spending, leading economists to question whether a recession is on the horizon.