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Head Scratcher on the Recession Obsession

CAMS Weekly View from the Corner – Week ending 6/28/2019

July 1, 2019

This past Thursday the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS) released reports relative to the general economic backdrop.

In the case of the BEA they released the final estimate for the 1st Quarter Gross Domestic Product known as GDP for short.  There are three estimates for every GDP report that are revised and released as weeks unfold following the end of a quarter.

This final estimate for 1st Quarter GDP continued to reflect a healthy 1st Quarter economic backdrop for the United States.  The result came in at a 3.1% annual growth rate.  The 4th Quarter of 2018 result was 2.2% annual growth rate.  1st Quarter growth increased from the 4th Quarter.  We do not see this type of progress when recession is imminent.

The initial estimate for 2nd Quarter GDP will be released this month which is expected to be slower than the 1st Quarter but yet still quite positive.  Sound recessionary?

We continue.

Thursday the BLS released the Weekly report for Unemployment Insurance Claims.  For perspective, historically we see these Initial Claims run in the mid 300,000-to-low 400,000 range as the economy leans into recession.

This past Thursday the BLS informed us these Initial Claims came in at 227,000.  For additional perspective, this level is only marginally higher than the multi-decade low levels we were seeing in recent months.  Sound recessionary?

Via the Federal Reserve’s most recent interest rate meeting they informed us they are relaxing their vigilance on the interest rate front and may even be open to lower rates near-term.  This is meant to stem off recession risk.

Do we need interest rate cuts? 

This question can take pages of discussion.  We will keep it extremely short and offer through the lens of the general economic backdrop that we do not at this stage.  The overriding question is will market participants be disappointed (think send stock prices lower) if the FED does not deliver on lowering interest rates?

As data comes in and if it continues to reflect a slower but healthy economy preventing the FED from cutting rates will this be looked at as a positive being the economy is not imminently recessionary or will it be viewed as a negative because rate cuts will not be coming as expected?

These are unanswerable questions at this stage in light of needing the data flow to come in to help gauge these prospects.  What we do know, via the data presented above is that the U.S. economy is anything but cliff-diving to recession as of today.

The remainder of the summer should be quite interesting when viewed through these questions and observations.  We will share accordingly.

In the meantime we wish you a wonderful 4th of July week!  In light of the holiday mixed week we will share our next Weekly View on Monday, July 15th.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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