It's December sixth now. Can we all finally agree that the U.S. did not slide into recession this year?
If there was one simple reason to think the recession everyone has feared for the past twelve months wouldn't materialize, it was the fact that everyone seemed to agree it was coming.
Don't believe me? Or don't remember? Almost exactly a year ago this weekend, as stocks plunged, the nation's leading newspapers both featured recession worries on Page One. And it wasn't just there that the "r" word appeared prominently. A miscellaneous Sunday Review piece in the Times that same weekend began by saying "A recession might be just around the corner, but for experts in the field of 'authoritarian studies,' these are boom times." Oh, and the Sunday Styles ran a feature asking "Are You Ready for the Financial Crisis of 2019?"
My guess is most people have been ready--and waiting--for the Next Big One ever since the last one ended. What they probably haven't been ready enough or positioned for is the bull market and economic expansion to continue. And the same analysts and pundits that mourn the lack of broad participation in the stock market have been scaring the pants off people about staying invested in it.
Of course there were "major risks" looming for the economy in 2019. If investing in stocks weren't risky, it wouldn't deliver a return. There's a reason seasoned investors cheer "walls of worry"--because the market doesn't stop at them, it climbs them. The more "headwinds" everyone says are facing the market, the less anyone has to worry about them. Keep all this in mind as people roll out their 2020 forecasts.
Anyhow, I'm not saying the change in Fed policy wasn't a key reason the U.S. dodged recession this year, but I'm also not convinced it's really even sunk in yet. Monetary policy works with "long and variable lags" -- as in years sometimes, not days or weeks' time (except during an actual crisis). The Fed's third and final rate cut this year was just six weeks ago! And as for the "Forever Trade War," which hit the manufacturing sector hard, it's become just that--and still the expansion goes on.
I still ponder Scott Minerd's point, just before the Fed cut rates again this summer, that the Fed should have been raising rates, given the super strong labor market, not cutting them. Might sound crazy, but then so do most things which are right in the long run. And what did we learn from the jobs report this morning? The U.S. labor market is still super strong. Anyone who can't tell a consistent story about that doesn't have a firm grip on what's really going on with the U.S. economy.
Long story short, I'll start getting really worried about a downturn when everyone decides one isn't coming.
Have a great weekend!!
Kelly