Market Overview

A Recession In 2019? Analysts Aren't Convinced

A Recession In 2019? Analysts Aren't Convinced

Six months ago, when the S&P 500 was around 2,702, DataTrek Research co-founder Nicholas Colas said one word would dominate the stock market in the second half of 2018: recession.

Colas’ prediction was spot-on, with the SPDR S&P 500 ETF Trust (NYSE: SPY) down 8.4 percent since that time on fears of an economic slowdown in coming quarters.

Despite the fear that has crippled the market in recent weeks, there seems to be very little evidence suggesting an actual U.S. recession is imminent.

Stocks Cheaper Than A Year Ago

Edward Park, deputy chief investment officer at Brooks Macdonald, told CNBC Friday that the U.S. economy seems relatively stable for the time being.

“Is growth slowing to a point where 2019 is going to be a potential recession? We don’t believe so at the moment,” Park said.

In terms of stock prices, Park said the S&P is going to start off 2019 at about a 25-percent earnings multiple discount to where it was a year ago.

No Imminent Recession

Megan Greene, chief economist at Manulife Asset Management, told Bloomberg Friday that the risk of a U.S. recession is not nearly as high as investors seem to fear.

“The market volatility and corrections aren’t actually a macro story. The macroeconomic fundamentals in the U.S. look pretty good ... the yield curve’s incredibly flat, and I think it could invert next year. That doesn’t mean a recession is imminent, of course. It means it’s coming eventually." 

US Better Off Than Europe

Geoff Yu, head of the U.K. investment office at UBS Wealth Management, told Bloomberg that UBS sees no risk of an imminent recession in Europe — and the U.S. economy is on even better footing.

“We think that it’s a minor slowdown,” Yu said. “Ultimately, it looks like the fundamental buyers are starting to come in.”

Longer-Term Perspective

As for DataTrek's Colas, he’s taking a much longer-term perspective on stocks heading into 2019.

In the firm's Friday newsletter, Colas said the S&P 500 has generated a compound annual total return of just 5.52 percent over the past 20 years.

“The last two decades have been some of the worst for nominal long-term returns in U.S. stocks since the periods ending in the late 1970s (6.5-6.8 percent CAGRs) and the late 1940s (2.4-4 percent), which includes the Great Depression,” Colas said. 

“Average trailing 20-year CAGRs since 1928 are 10.7 percent nominal/7.3 percent real, so the last 20 years are also well below average levels." 

You wouldn’t know it by looking at recent stock market action, but it seems that the U.S. economy is stable for now. And even after a 10-year bull market, the stock market may not be nearly as overheated as it seems if investors take a longer-term perspective.

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