President Donald Trump is now warning of an economic crash if he loses reelection, making the point that if voters dislike him, they should base their views on the US strong growth and low unemployment rate. He does have a point but the fact is that a US economic slowdown could spell trouble for Trump in 2020. There were signals appearing in trade markets – namely the 2-year and 10-year bond market inversion – a historical signal that usually points to recession in the future. However, we want to make it clear that the future of the economy would be decided by protracted market forces or signals – this yield curve inversion would need to be in place for three months or more. So this inversion that took place on Wednesday of last week, knocking the Dow Jones lower by 800 points, returned to normal by Friday and triggered a tech, industrial and bank rally …. the market snapped back is the short version.
With the market still under pressure from the US-China Trade War, there will be months like August – brutal and shockingly volatile. While this article which appeared on ABC News did point out the fears of a 2020 election problem if in fact the US economy slipped into recession, it pointed out several points worth pondering. Right now the US consumer is driving the US and global economies and that is because 70% of the US economy is the consumer driven. Still, we are looking closely at the US market and know that recessions are able to kick presidents out of office. Trump seems to be concerned about Wall Street and was openly on the phone talking to bankers last week when the yield curve inverted. More on this topic in the coming weeks. We feel that there is a 40% chance of a recession by 2020. And this is a number echoed by many on Wall Street.