eResearch Blog: Weekly Comment for August 27, 2007
Are We Heading for a Recession?
We have certainly had an extensive bull market run over the past 4-5 years. How much longer can it go on? Or is it over for now?
If it’s over, is a stock market down-turn a harbinger for an up-coming recession? The stock market always leads economic down-turns, usually by about 3-4 months.
In the past month, the stock markets have gyrated wildly, none more so than on Thursday, August 16th, when the indices reached recent lows. From the July all-time highs to that August 16th, the Dow Jones Industrials fell 11.2%, the S&P500 11.8%, and the TSX Composite 12.1%.
With the sharp recovery in the last two weeks, the indices have retraced about 50% of the down move. This is not unusual after a dramatic free-fall. But if the markets turn lower again and take out the August 16 lows, it could signal the possibility of an economic slow-down, if not a full-blown recession.
What are some of the current factors that indicate a recession in the United States (and its concomitant effect on Canada) is possible? The labour pool is tightening. Commodity prices are historically high. House prices are declining. Credit conditions are tight. The Federal Reserve is nervous. Durable goods orders are weak. Consumer confidence/psychology is waning. Inflationary fears are prevalent. The sub-prime mortgage crisis is not yet over.
It is time to get defensive with your stock portfolio. At least until it is possible to ascertain which way the winds are truly blowing.
We have certainly had an extensive bull market run over the past 4-5 years. How much longer can it go on? Or is it over for now?
If it’s over, is a stock market down-turn a harbinger for an up-coming recession? The stock market always leads economic down-turns, usually by about 3-4 months.
In the past month, the stock markets have gyrated wildly, none more so than on Thursday, August 16th, when the indices reached recent lows. From the July all-time highs to that August 16th, the Dow Jones Industrials fell 11.2%, the S&P500 11.8%, and the TSX Composite 12.1%.
With the sharp recovery in the last two weeks, the indices have retraced about 50% of the down move. This is not unusual after a dramatic free-fall. But if the markets turn lower again and take out the August 16 lows, it could signal the possibility of an economic slow-down, if not a full-blown recession.
What are some of the current factors that indicate a recession in the United States (and its concomitant effect on Canada) is possible? The labour pool is tightening. Commodity prices are historically high. House prices are declining. Credit conditions are tight. The Federal Reserve is nervous. Durable goods orders are weak. Consumer confidence/psychology is waning. Inflationary fears are prevalent. The sub-prime mortgage crisis is not yet over.
It is time to get defensive with your stock portfolio. At least until it is possible to ascertain which way the winds are truly blowing.
posted by Bob Weir at
3:45 PM
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