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Market Snapshot: How a Potential “Baby” Recession Will Impact the Markets

A ‘baby’ bear market normally precedes a ‘baby’ recession

As the economic data begins to first decelerate and then perhaps enters a period of very modest decline, investors will react accordingly, first modestly reducing equity holdings and then more actively selling.  The resulting market decline itself cultivates a further wave of uncertainty….and, as happened before, could put its own incremental damper on economic activity.

What is a “baby” recession?

The official definition of a recession is two (or more) consecutive calendar quarters of real (net of inflation) economic decline.  It’s entirely possible that nominally the economy would still be growing fractionally.  The last recession was of course from May 2008 through July 2009, which was the economic equivalent of a 100-year flood.  I anticipate nothing like that this time around.  However now, after more than 10 years of growth from that very big trough (with virtually all productive capacity at near-full utilization), I would suggest we are due for a breath.  This is already showing up in various aspects of the economy, most particularly in manufacturing.

What can and should policymakers do?

We already have very accommodative monetary and fiscal policies so it would be difficult for any further pump-priming to have any significant effect, but that’s okay.  Even with most capacity already spoken for, there are few macro-economic excesses that truly can create a problem as they are worked off.  In my opinion, this potential “baby” recession should be limited enough such that it can be allowed to burn itself out, and the resulting ‘reboot’ to both the economy and the financial markets will set the stage for a very strong start to the decade of the ‘20s. 

Stay tuned for periodic “market snapshots” between my monthly market updates. There’s always something brewing on Wall Street!

Questions? Contact any member of KLR Wealth Management, LLC.

Published on: 09.10.19

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