The evidence has been mounting for sometime now, despite the stock market’s historic run up . The latest data, released today does nothing to dim the prospects of a downturn.
Leading the list are U.S. retail sales. They posted the smallest gain in February in six months, the Commerce Department reported today.
The figures are significant because consumer spending has been driving the economy, according to Bloomberg. Just four of the 13 major retail categories saw gains in February sales.
Purchases rose a scant 0.1 percent, compared with a 0.6 percent increase in the prior month, according to the data. If retail sales flag for a second month in a row, red flags will go up on the economy.
The figures raise questions about consumer confidence despite job growth. Some economists say a delay in tax refunds may be partially responsible for the slowdown.
While the latest job growth numbers provide some reason for optimism, the latest report from the Labor Department shows that inflation is moderating, a sign of weakening demand.
The consumer-price index rose 0.1 percent compared with a 0.6 percent jump in January. During the last year of Obama’s presidency the Consumer Price Index rose 2.7 percent, the most since March 2012.
Rising prices last year set the stage for the slowdown, leading to the biggest drop in inflation-adjusted spending since 2009, according to separate Commerce Department report released earlier this month.
While the numbers in themselves are inconclusive, the Federal Reserve could provide the tipping point for a recession.
The central bank raised its benchmark short-term interest rate by a quarter percentage point today (Mar. 15). The rate hike, the second since December and third since last year, is designed to cool the economy and ease inflation by raising the cost of borrowing.
The Federal Open Market Committee increased the target federal funds rate — what banks charge one another for overnight lending — to a range of 0.75 percent to 1.0 percent.
Hardest hit will be consumers with adjustable rate loans, typically credit cards and home equity loans. Small businesses will also find the cost of money higher, and mortgage rates will rise making it more expensive to buy homes, according to USA Today.
That does not bode well for consumer spending. As costs rise, consumers will pull back.
There is some debate whether the Fed rate hike is necessary, but the Fed seems determined to stay the course.
While Trump seems to have had a more direct impact on the stock market; it jumped following his election to a historic high. But some economists are now predicting a significant pullback.
The Dow Jones Industrial Average, made up of the nation’s largest manufacturers, hit a new high, 21,115, this month. Since then its been slowly giving back its gains.
Dan Wiener, who runs the Independent Adviser for Vanguard Investors and runs money as president of Adviser Investments, told investors in a client note to expect as much as a 20 percent correction this year.
That’s been the historic norm over the past 30 years. The stock market has declined an average of 14.3 percent from high to low on an intrayear basis, he said.
Another factor weighing against the stock market is its historic bull run. The market bottomed out in March eight years ago during the Great Recession. Since then, the benchmark S&P 500 has risen almost 250 percent, not counting dividends.
Katie Stockton, a technical analyst for BTIG is more optimistic. She sees a short-term pullback because many stocks have been oversold. Stockton, who last year correctly called the S&P’s rise to 2,400, now sees an S&P target of 2,280, a 3.5 percent decline from its current level.
She told CNBC’s “Squawk Box” she doesn’t expect the pause to last long, before the bull market starts galloping again.
On the flip side, Sandy Jadeja, chief market strategist for Master Trading Strategies, predicts the Dow could tumble more than 6,000 points to 14,800, nearly 30% lower decline, based on Monday’s close.
What makes his prediction scary is Jadeja’s previous record for calling market crashes. For example, he predicted the August 2015 “Flash Crash” 18 days before it hit, according to CNBC.
The timeline is rapidly approaching for the next potential Dow meltdown, Jadeja said in a MarketWatch interview. The downturn could begin as early as May 11, he said.
Stocks are in the midst of a seven-year cycle that only comes around every 84 years, he says. The current cycle dates to 2011 and ends in 2018.
If the economy slips into a recession, Trump and Congressional Republicans will have no one else but themselves to blame. Instead of moving quickly on Trump’s promised corporate tax cut, tax reform an infrastructure spending, he’s been wasting time on the fractious debater healthcare.
His zeal to grind an ax over ObamaCare has left lawmakers asleep at the switch on the economy.
If it tumbles, he’ll have no one to blame but himself.