Green Shoots and Red Spots By: Gabriel PotterMBA, AIFA® 2018.11.26

At the bottom of the last recession, market analysts and economists went searching through the news looking for isolated spots of growth – green shoots – emerging out from the wreckage.  In contrast, during this season of healthy markets, analysts instead try to temper their giddy optimism by being on the lookout for red-spots – signs of slowdown and trouble.    

Last week, we considered one part of the market – the energy sector – which has endured some recent pullback.  However, the price-ranges we suggested on the value of oil suggest guardrails for the economy at large.  In other words, the fluctuation in the energy sector might not be a catalyst for a coordinated recession.  Notably, as of today (November 26th) stock prices climbed sharply on a partial recovery of oil prices.

What other potential dangers could there be?  President Trump has lately taken to his twitter feed – blaming the flat markets of 2018 primarily on the Fed and their interest rate hikes over the past year.  Again, while there have been overly aggressive FOMC actions in decades prior, the steady, well-signaled, and deliberate hikes of 25 basis points per quarter are not radical given the extremely accommodative starting point for rates.

So, is there anything to be scared of at all?  Are there, in fact, underappreciated risks and dangers for the markets and the economy?  Are there true catalysts for market & economic tumult which might not be so easily contained? 

Of course there are.  As we’ve been saying for months, the potential for tariffs and trade wars can create all sorts of havoc.  General Motors announced today that they’re firing 14,000 employees, closing five plants, and canceling some car models.  This is due to a number of factors including Trump’s featured scapegoat, the Fed, for increasing borrowing costs, but also for increased prices for raw materials due to tariffs.  Similarly, mid-western farmers have also faced challenges as we’ve lost access to key buyers of US agricultural products.  International relationships have several sore spots, including a potential flare-up between Ukraine and Russia, a dysfunctional Brexit, or threats of border closings; any one of these catalysts could break or reset global trade relationships. 

To reiterate, Wall Street bank and financial institution consensus does not actually call for a recession during the next year.  We are merely discussing possibilities at this point.  What *could* go wrong.  It’s worth having a sensible sense of skepticism while we’re enjoying a healthy and steady economy at the moment.  As usual, we will be more specific about what they are calling for next month when we release the end of the year 2018 roundup which enumerates the predictions from last year as well as updated predictions for the forthcoming year.  Naturally, we will take the experts’ calls with a grain of skepticism too; we remember that Wall Street isn’t perfectly accurate either. 

 

 

 

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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