Scary Hours

Candyman

Recession.

For the past 3 years, the term has dominated discussion in financial markets.

In 2022, Russia invaded Ukraine and the stock market experienced a sell-off that caused many to believe a recession would follow shortly.

2023 was known as the year of the “recession that never happened”.

• WSJ asked a panel of 70 economists to rate the chances of a 2023 recession, and the average answer was 63%.

2024 presents new unknowns that lead tenured market analysts to a state of bearishness.

Trendsetter

Like everything else in life, it seems as though the more people eagerly anticipate an economic downturn, the more it eludes us.

According to Google Trends, search queries for “recession” peaked during the summer of 2022.

The drivers for a looming recession include:

• Government Budget Policy

• Political Instability

• High Rate Environment

Consumer spending has been strong throughout the past year, and many economists believe it is the last pillar holding up the economy. Indicators are starting to suggest a spending slowdown.

To get a better grasp on how seasoned veterans are interpreting signs of the times, I talked to one of Bloomberg’s top experts.

Live from the

Mike McGlone is a Senior Macro Strategist at Bloomberg with 30+ years of experience:

• Head of U.S. Research at ETF Securities

• Chief Strategist / Risk Manager at The Lyford Fund (Macro HF)

• 8 Years at Bloomberg

He has a love of commodities and can be found delivering insightful breakdowns on gold, crude oil pricing, Bitcoin, and more.

But when I talked to him on the phone last Friday, our focus was on recession probabilities.

Check out his main points below:

• Deficit as a % of GDP: McGlone noted that last year’s deficit amounting to 6%+ of GDP is scary. Nearly $2T… There will be some sort of economic karma for unhinged government spending

• Equity Prices / Credit Spreads: A historically expensive equity market is stealing the show from other indicators that deserve the limelight. Credit spreads are also very narrow, an indicator of relatively low credit risk. Asset prices are telling investors things are going well, but most market analysts disagree.

• Potential Triggers: McGlone sees the upcoming election as a potential trigger to an equities sell-off. More specifically, he fears the likelihood of a hung election (i.e. 2020) and believes a stock market reversion will bring the economy’s true colors to the surface.

All in all, McGlone seemed cautious about neglecting the economic risks at hand.

What do you think?

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