Equity Volatility Does Not Spell Recession

At a Glance

  • Lower bond yields may not mean a recession is on the horizon
  • China and Germany are facing more serious growth concerns than the United States

Equities and bonds are worried about a recession.  With the escalating trade war with China, the odds of a U.S. recession have risen a little, to say a one-in-three chance. Still, we are hard pressed to see an actual U.S. recession.

The news from Europe and China is much worse.

Germany, the eurozone’s largest economy, may well have a mild recession, with second quarter growth contracting.  Negative rates are a tax. Negative-yielding debt discourages spending. Your retirement or savings portfolio is going to shrink slightly over time.  Germany’s auto sector is a mess.  Demand is no longer growing and the switch from a focus on diesel to electric vehicles is costing money and yielding no additional cash flow.

China, the world’s second largest economy after the United States, is getting hit hard by the trade war and growth is decelerating rapidly.

The trade war has hit equities (and multinationals profits) harder than it has hit U.S. consumers, so equities are right to fear the fallout from the trade war.

Bottom line: lower bond yields and equity market volatility do not necessarily mean a U.S. recession – just a mild economic deterioration for the United States.

Bluford (Blu) Putnam has served as Managing Director and Chief Economist of CME Group since May 2011. He is responsible for leading economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact. Prior to joining CME Group, Putnam gained more than 35 years of experience in the financial services industry with concentrations in central banking, investment research and portfolio management. He has authored five books on international finance.

Additional Recent Articles in Economics