Bloomberg Businessweek - USA (2019-11-25)

E C O N O M I C S

DATA:

COMPILED

BY

BLOOMBERG

28

Edited by

Cristina Lindblad and

David Rocks

Three months ago the economic outlook seemed

dark. The U.S.-China trade war refused to go away,

and there were signs of weakness in Germany, the

European Union’s economic linchpin, as well as

the U.K., which faced a messy exit from the EU. On

Aug. 14 major U.S. stock indexes fell 3%, spooked

by a steep drop in long-term bond yields. “Investors

are increasingly selling first and asking questions

later,” one analyst told Bloomberg.

Pity the investor who panicked and sold off, or

the executive who shelved a planned expansion—

since August, the economic outlook has bright-

ened considerably. Stock indexes in the U.S. set

records almost daily in early November. The mood

has gone from gloomy to exuberant. “The bulls

are back ... global recession fears vanish,” wrote

investment strategists at Bank of America Merrill

Lynch in a Nov. 12 note to clients.

In August, nearly three times as many global

fund managers surveyed by Bank of America

Merrill Lynch expected weaker global growth over

the coming year as expected stronger growth. In

November, the optimists actually outnumbered

the pessimists.

True, investors and money managers have been

known to overreact. Things weren’t as bad as they

looked in August, and they may not be as good as

they seem now. “The baseline forecast moves rel-

atively little as new data come along,” says Chris

Varvares, co-founder and senior managing direc-

tor of Macroeconomic Advisers in St. Louis. “The

risk premium is what’s moved around, reflecting

investors’ perceptions of risk.”

Still, there’s something real underlying the

improved sentiment. What bearish investors over-

looked in August is that monetary policy was

already shifting. In December the Federal Reserve

was tentatively planning on three quarter-point

increases in the federal funds rate in 2019. It put

those on hold and then cut three times, with two of

BloombergBusinessweek November 25, 2019

A Global Sigh of Relief

Sentiment has improved markedly since this

summer as recession risk recedes

Dow Jones

IndustrialAverage

6/1/19

24,820

11/19/19

27,934

● Aug. 1

Trumpannounces

10%tariffson

$300 billion worth

of Chinese products

● Aug. 26

Inversionofyieldcurve

signalsrecessionrisk

● July 31

FederalReserve

reducestargetforthe

federalfundsrate

bya quarterpercent

● Sept. 3

Yieldcurveuninverts

● Sept. 18

Fedcutsanother

quarterpercent

● Oct. 30

Fedcutsanother

quarterpercent

● Nov. 15

WhiteHouseeconomic

adviserLarryKudlow

saysa phaseonetrade

dealwithChina

is “comingdownto

theshortstrokes”