The economy has been relatively strong for the last decade, since it recovered from the 2008 collapse. This is great news, but economic health is historically cyclical. Where there’s a bull, there’s usually a bear waiting to jump in.
European countries, such as Germany, France, and Italy, appear to be nearing their post-2008 boon era. Other countries, such as Australia, Korea, and Canada are steadily heading in the same direction. Britain, which is currently dealing with Brexit, and China are already experiencing a recession.
Historically, seven out of 13 bear markets since WWII have been followed by recessions. The economy has had a decade of highs; signs are emerging that investors need to prepare for the lows.
Bull periods then to work predictably. Since 2008, we witnessed a sharp economic upturn and easy monetary policies which resulted in considerable growth. After approximately a year, the economy saw peak performance for three years. During the final phase of a bull period, which can last up to two years, GDP and profits slow down as the Federal Reserve tightens it monetary policies. This final phase is usually followed by a recession as the circle comes to a close.The US recovered from the 2008 fiasco by incurring massive debts through bond sales and negative interest rates. President Trumps signed the Tax Cuts and Jobs Acts in 2017 as a final economic recovery boost. It is likely we will begin to see a slowing of economic growth prior to yearend.
Dirk Hofschireof Fidelity Investments has suggested that this might be the time for investors to shift their assets from risky investments to high-yield bonds and stocks in consumer staples. Defensive investments usually do well during a recession. Gold also historically holds up well during recessions.
No one is sure when the Great Recovery will end, but the finish line might be looming over the horizon.
All the signs of a tamed and tired bull are there. The GDP is expected to fall from a high of 4.2 percent during the second quarter of 2018 to a low of 1.6 percent by the fourth quarter of 2019. It is uncertain whether we’ll see a recession by the end of the year, but a decrease in economic growth appears to be inevitable. Any unexpected event could send the economy into a downward spiral.
22 Trillion dollars in national debt needs to be viewed as a warning sign. Corporate profits may tumble, and possible defaults only add to the economic volatility. The Great Recovery may be on its last leg. Certainly, a slowdown lays ahead.
According to Kenneth Rogoffof Harvard University and former chief economist at the International Monetary Fund, a new recession will take longer from which to recover than the last, as the Federal Reserve is unlikely to continue its low interest rate policies.
Trade tensions between the US and China and the effects of Brexit contribute to the uncertainty. The vagaries of the new proposed Green Deal, which is already pitching Democrats against Democrats and Democrats against Republicans, only add to the upcoming economic doubts.
When will the longest economic bull period in history end? No one can say for certain, but the bears are ready and waiting.
