Our Opinion: 2019

US downturn on the horizon?

Talk of a possible recession in the US has been picking up. Its economy is facing headwinds from trade wars to slowing global growth.

The US Central Bank, the Federal Reserve, has already U-turned on raising interest rates, giving stocks a boost. But the Bond market gives a different story. Yields remain surprisingly low, implying investors fear a slowdown more than rising inflation.

Most economists still expect positive growth for this year, but more than three quarters of corporate Chief Financial Officers said, in a recent survey, that they expect a recession by the end of 2020. There are certainly some concerning signs in the data. US industrial production fell by 0.6% in January, suggesting a cooling at US factories that could prompt a slower pace of growth this year. And, in December, retail sales plunged by 1.7%. Even if spending rebounds, consumption growth is likely to slow sharply in the first quarter of 2019. Meanwhile, companies have been warning of weaker revenues and profits as the exuberance from Donald Trump’s tax cuts starts to wear off. For example, Coca-Cola expects sales growth of 4% this year, down from 5% last year.

Regardless of whether a recession hits shortly, or further into the future, US stocks don’t look to be pricing in any upsets that could lie ahead. They look more expensive, relative to the rest of the world, than they have been since at least 1980. It’s a useful reminder that, while US stocks are in bubble territory, there is plenty of value to be found elsewhere.


6th March 2019