Market Commentary

Recessions

The traditional statistic that is most commonly used to signal that the U.S. economy is in a recession is when there are two quarters in a row of shrinking GDP. For investors this is a problem because by the time we see the numbers it is months after we are already in the recession. It is always backward looking. This is the very reason investors use leading economic indicators to help determine what the future might be concerning recessions.

Recently, there has been an argument that we are already in a recession and that we need to look for different kinds of statistics. Maybe we should look at corporate earnings. We have had two quarters in a row where the earnings per share has declined, and very likely will have a third quarter of declines this earnings season.

Surprisingly an earning recession is positive for stocks; why, is simple. The Federal Reserve sees the earnings recession and reacts by lowering interest rates. At least that is what investors think and they drive prices up as the Fed lowers rates expecting an earnings turnaround in the future.

It is never easy!

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