Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Pricing in a Recession

Stock-Markets / Recession Mar 10, 2008 - 03:47 PM GMT

By: Paul_J_Nolte

Stock-Markets Investors are beginning to price into the markets a recession. The non-farm payroll figures out last Friday were worse than the street expected, showing a loss in jobs that for many, solidified a recessionary outlook. Calls for more rate relief from the Fed pushed the expectations for not just a half percent cut in rates later this month, but a strong likelihood of three quarters, if not a full percent cut. While a nice thing to do to get the economy going, the impact of any rate cut this month will not likely be felt until early 2009 due to the lag effect of changes in monetary policy.


The flipside to another rate cut is the persistently weak dollar – and lower rates won't help stabilize the dollar either. If our rates are below those of other countries (and they are) – investors are likely to head to where they can get the highest rates (currently Europe). To top off the Fed's dilemma is still high commodity prices spurred by a robust Chinese economy. While rate cuts are not the solution to a weak dollar and rising inflation rates, the Fed is more concerned with avoiding a recession (too late) than fighting inflation. The coming week provides some information on the lone bright spot in our economy – trade. The lower dollar has boosted our exports while our slowing spending has cut imports. Any bad news here could send stocks lower still.

After taking a flurry of body blows over the past few weeks, the markets remain barely above the lows of late January. If key levels are broken, we could see another 5% hit to prices over the next couple of weeks. Many of our weekly and even daily indicators are approaching bottom points, it will be a rally that will tell whether we are at “the” bottom or merely another resting point before “the” bottom actually is hit at some point in the future.

Outside of bonds and cash, there have been few places of refuge in the markets as even gold and energy issues declined in step with the major averages last week. Unlike past declines, this one is coming on generally lighter volume and lacks the outright fear of past declines. For example, the number of new lows is half of the number in January, total declining volume is well below that of January and the summation index we use – on balance volume has also not set a new low. While many may look at these divergences as positive, they will only become effective if the markets can begin to climb out of the hole (and do it on good volume). Until then, the markets seem to be declining in a careless or haphazard fashion that is too difficult to make sound long-term investments decisions.

The short end of the yield curve is once again below 2% - a level that many thought we wouldn't see for another generation after actually going below 1% in 2003-04. Long rates, along with mortgage rates continue stubbornly higher – with good reason. Long-term bonds are more worried about inflation fears and with commodity prices still rising, it will be hard to bring long rates much lower. Mortgage rates are no longer locked with 10-year bonds, but are now a function of how much a lender is interested in loaning money. Right now, that interest level is low as they are unable to package loans and sell them, hence the reason for the credit crunch we find ourselves. Until the lending doors open – here we will stay with a very low short-term rate and relatively high long-term rates. Good for banks, bad for loans.

By Paul J. Nolte CFA
http://www.hinsdaleassociates.com
mailto:pnolte@hinsdaleassociates.com

Copyright © 2008 Paul J. Nolte - All Rights Reserved.
Paul J Nolte is Director of Investments at Hinsdale Associates of Hinsdale. His qualifications include : Chartered Financial Analyst (CFA) , and a Member Investment Analyst Society of Chicago.

Disclaimer - The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.

Paul J. Nolte Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in