Placeholder Image

Subtitles section Play video

  • Hi, and welcome to The Motley Fool's Bottom Line series.

  • In this episode, we're going to take a look at a few signs that indicate that the U.S. may be headed for a recession.

  • And what that means for the U.S. economy and the stock market.

  • A decade ago, things were looking pretty dire.

  • In October 2009, the U.S. unemployment rate peaked at 10%.

  • And the Federal Reserve was scrambling to incite calm in a very jittery stock market and U.S. economy.

  • Just seven months earlier, the Dow Jones Industrial Average, Nasdaq Composite, and broad-based S&P 500 all hit multi-year lows.

  • But things have rebounded in a big way over the past decade.

  • We're currently in the midst of the longest expansionary period for the U.S. economy in recorded history.

  • The unemployment rate is at a nearly 50-year low, and the Dow, NASDAQ and S&P 500 have all hit record highs since the Great Recession

  • Unfortunately, all good things must come to an end.

  • Right now, there are a few red flags indicating that there could be trouble ahead for the U.S. economy and the stock market

  • The first red flag is the inverted yield curve.

  • A yield curve inversion happens when longer-maturing bonds have a lower yield than shorter-maturing bonds.

  • Generally speaking, short-term bonds should have lower yields than long-term bonds.

  • After all, if you're giving up your money for a longer period of time, you expect to be paid more for doing so.

  • But over the past couple of months, the two-year and 10-year Treasury note swapped places a few times, with the two-year note bearing a higher yield than the 10-year, which is known as an inversion.

  • Every single recession in the U.S. economy since World War Two has been preceded by an inversion of the yield curve

  • Although it's important to note that not all yield inversions have necessarily been followed by a recession.

  • Nevertheless, inversions don't come about unless there's some serious concern about the health of the U.S. economy.

  • A second concern for the economy is the current contraction in U.S. manufacturing.

  • The Institute for Supply Management releases its Purchasing Managers' Index every month, which is a gauge for how the manufacturing sector is doing in the U.S.

  • And in September, the PMI fell to 47.8%.

  • That's the lowest percentage it's been since June 2009, and any reading below 50 signals a contraction.

  • There's little doubt that the ongoing trade war between the U.S. and China is the biggest headwind in this confidence collapse in manufacturing.

  • Peter Boockvar, the chief investment officer at Bleakley Advisory Group, recently said that we have now tariffed our way into a manufacturing recession in the U.S. and globally.

  • The U.S. and China have been trying to work out a long-term trade deal for more than a year now, with tariffs being imposed on and off for the past 15 months.

  • There's simply no quick fix to the trade war, and the longer it lingers, the more U.S. manufacturing may suffer

  • Lastly, history would suggest that the stock market and U.S. economy are primed for a recession.

  • Despite more than 10 years of expansion, there's a good probability that a recession will happen sooner rather than later.

  • The U.S. has had 14 recessions over the past 90 years, or about one every six and a half years.

  • Even though the U.S. economy doesn't stick to averages, this long-term data is pretty clear that recessions are a natural and unavoidable part of the economic cycle.

  • We also know that stock market corrections are perfectly normal.

  • In fact, the S&P 500 has had 37 corrections of at least 10% since 1950.

  • The bottom line is that no matter what the U.S. economy has historically thrown at the Dow, Nasdaq, or S&P 500, they've always bounced back stronger than they were before.

  • That's why long-term investors continue to be rewarded for their patience.

  • Thanks for watching this video!

  • Do you think the U.S. economy is headed for a recession in 2020?

  • Let us know in the comments below.

  • If you liked this video, click the thumbs up button and hit subscribe.

  • It helps us to reach more people, which allows us to make more awesome content.

Hi, and welcome to The Motley Fool's Bottom Line series.

Subtitles and vocabulary

Operation of videos Adjust the video here to display the subtitles

B2 US recession economy yield stock market stock manufacturing

Is a Recession Coming? 3 Signs of a Stock Market Crash in 2019/2020

  • 227 14
    Annie Chien posted on 2019/11/20
Video vocabulary