Is the U.S. stock market ignoring the warnings signs as Japan and Germany careen towards recession in 2020?
U.S. stock markets continue to blaze in ‘risk-on’ mode despite a number of global headwinds. The Dow Jones Industrial Average (DJIA) pushed nearly 100 points higher on Wednesday, hovering just shy of all-time highs.
But are traders ignoring the bigger picture? Japan and Germany – two of the world’s four largest economies – are on the brink of recession. Meanwhile, China is expected to record its slowest growth in almost 30 years (and that’s before the coronavirus hit).
JD Supra said yesterday the risk of global recession is now imminent and it’s their top risk factor for 2020.
The possibility of a global economic downturn is imminent and will have fundamental ramifications for businesses, governments, and individuals alike.
The Dow bounced 67.46 points (+0.23%) higher on Wednesday as traders shrugged off yesterday’s jitters. Even Apple’s revenue warning didn’t dampen investor sentiment for long.
The S&P 500 and Nasdaq climbed 0.35% and 0.62%, respectively.
Japan shocked the markets last week with a brutal 6.3% fall in annual GDP. The country’s economy is now shrinking at the fastest pace in six years. Analysts predict another fall this quarter which will throw Japan into a technical recession.
Taro Saito from the NLI Research Institute stated:
There’s a pretty good chance the economy will suffer another contraction in January-March. The [coronavirus] will mainly hit inbound tourism and exports, but could also weigh on domestic consumption quite a lot.
Over in Germany, Europe’s largest economy, growth has slowed to zero. Germany’s central bank, Bundesbank, said demand is slipping in every major industrial sector. Still, the Dow Jones has barely blinked.
Perhaps the most telling statistic is a survey of the world’s logistics executives. Two-thirds of shipping leaders say they expect a global recession in 2020. That’s telling because they’re witnessing first hand the slowdown of global trade.
It’s not just Germany and Japan, either. Hong Kong just entered its first-ever back-to-back annual recession on the back of political unrest and coronavirus fears. Britain is safe for now, but risks economic pressure if it can’t secure a favorable trade deal with the EU.
The U.S. economy is holding up, but there are warning signs here, too. The yield curve inversion – a historically accurate recession predictor – flipped red in 2019 and inverted again this year. Scientists at Massachusetts Institute of Technology (MIT) say the downturn could begin in six months.
So far the global stock markets have pushed higher in spite of declining economic data. But how long this dichotomy continues is anyone’s guess.