A Prudent Perspective On Recent Volatility
Published Friday, August 16, 2019 at: 7:00 AM EDT
Fears of a recession caused a 2.9% price plunge on Wednesday but the Standard & Poor's 500 index rebounded sharply by Friday on news of strong retail sales in July and closed the week at 2888.68, less than 5% from its all-time high.
Retail sales — excluding gasoline because of their volatility — surged 3.7% in the 12 months through July, following its 3.8% spike in June and 3.1% rise in May.
Since 70% of U.S. economic activity comes from consumers, the continued strength in retail sales dampened fears of a recession.
You can't have a recession if consumers are spending like this!
Meanwhile, the National Federation of Independent Businesses' index measuring small-business owner optimism, released on August 13th, remained near its 44-year high.
Small business generates about 60% of new jobs. With business owners so optimistic, a recession is unlikely.
Recession fears and market volatility are widely attributed in the press to the inversion of the yield curve. But the news reports are not written from the perspective of a prudent financial professional.
On Wednesday, the three-month Treasury-bill yielded more than a 10-year Treasury bond. In the past, when short-term yields are higher than long-term yields, when investors are not rewarded for taking the risk of owning long-term bonds, it's signaled the onset of a recession.
However, it may be different this time. The yield curve inversion on Wednesday may not be a reliable indicator in current economic conditions. While the yield curve has been a fairly reliable signal of a recession in the past, this time the U.S. yield curve is influenced by an unprecedented condition: negative yields in Europe and Japan.
Negative yields in Europe and Japan are depressing yields on long-term U.S. bonds, causing the inversion in U.S. yields. The inversion makes it prudent for investors to expect lower returns on fixed-income portfolio allocations in the years ahead, but it does not mean the U.S. is headed for a recession.
This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial or tax advice without consulting a professional about your personal situation. Tax laws are subject to change. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. No one can predict the future of the stock market or any investment, and past performance is never a guarantee of your future results.
This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
- Strong Jobs Report Caps A Week For The Record Books
- Why Stocks Rose Friday Despite A Rise In Inflation In April
- Weekly Investor Update
- The Confluence Of Bad News For Recent Retirees And Those About To Retire
- Good And Bad News This Week For Investors
- Getting There: The Economic Balancing Act Progressed In March
- Stocks Gained Friday But Closed Fractionally Lower For The Week
- Good News On Inflation But A Recession May Be Hard To Avoid
- Analysis: The First Data Since The Banking Crisis Erupted In March
- Stocks Gained 7% First Quarter And Other Good Financial News
- Despite Bank Fears And A Fed Hike, Stocks Climbed For The Week
- Bank Panic And Strong 1Q '23 Economic Growth
- Mixed Economic Signals And A Bank Failure
- Service Sector Remained Strong In February, Soothing Investors For Now
- Inflation Rose In January, Indicating Tight Monetary Policy May Continue Into 2024
- Amid Divergent Data, Here's What To Know
- Optimistic Again, Will A Fed Algorithm Be Right Again?
- The Bipolar Economy Of 2023
- On Wednesday, We’ll Know If The Federal Reserve Will End Inflation By Causing A Recession
- Technology Drove S&P 500 1.9% Higher Friday, But Look At Tech's Terrible 2022 Loss
- Here What To Know To Invest Wisely
- Prudence Requires Positioning Portfolios For An Economic Expansion