Key Economic Indicators Flashing Warning Signs of Potential Recession and Stock Market Decline
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A top recession indicator, commercial bank credit, has declined by over 2% from its peak - something that has happened only 3 times in the past 50 years. All 3 times were associated with stock market declines of around 50%.
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Another economic indicator, money supply (M2), has also declined significantly. There have been only 4 other instances since 1870 of M2 declining by over 2%. Each time a depression followed.
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Declining bank credit and money supply point to tightening lending standards and less money circulating. This typically precedes economic downturns and weaker stock market performance.
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While concerning economic indicators may point to trouble ahead, patience tends to pay off for long-term investors. Market downturns are usually temporary.
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Corporate earnings expand with the economy over time. Market declines represent buying opportunities for opportunistic long-term investors.