Juiced by tax cuts this year, the economy's performance peaked in the second quarter and is expected to increasingly lose steam in 2019, with growth slowing to a crawl and a recession looming.
That is one big reason the stock market has spiraled lower, as buyers rushed into Treasurys and yields on corporate debt snapped higher. Investors' views, in fact, may be even gloomier than those of economists.
Major firms this week have been releasing forecasts for next year, and both Goldman Sachs and J.P. Morgan see growth slowing to below 2 percent in the second half of 2019. But at the same time, the two firms expect the Federal Reserve to raise interest rates four times, while other economists believe the Fed may have to move at a slower pace.
Economists point to a number of factors for the slower growth, but topping the list of scare factors for markets are those Fed interest rate hikes as well as the impact of tariffs and trade wars, should they continue. Economists do not foresee a recession next year, but by 2020, one seems more likely, some economists said.
"It depends on the Fed. If they continue along the current [interest rate hiking] trajectory they are following ... I think [there's a recession in] the first half of 2020," said Joseph LaVorgna, chief economist Americas at Natixis. LaVorgna expects 2.5 percent growth next year, though slower in the second half.
Stock prices are now flat for the year, after a near 9 percent decline in the S&P 500 since September. More than 40 percent of the stocks in the S&P 500 have seen at least a 20 percent decline, reaching bear market levels. At the same time, credit spreads have widened in both the high yield and investment grade corporate to 2016 levels.
"Look at how much things have tightened," said James Paulsen, chief investment strategist at Leuthold Group. "If you look around the globe, there's been a slowdown in money growth and a rise in yields all around the globe, and typically when you tighten like that, this is what happens. ... You're starting to see more evidence of it in the home builders' survey, the housing numbers, the auto sales, the durable goods numbers."