US Recession: Overdue But Not Imminent

The S&P500 climbed another 0.86% last week. This means that the index has almost returned to its all-time highs, highs set in January, earlier this year. Volume was very light, as would be expected in a trading week in the later weeks of the summer. And volatility dropped off a bit, but interestingly the VIX index did not return to the lows reached in early August; instead, the VIX is still about 20% higher.

In terms of technical analysis, the S&P is now stretched to the upside. Prices are hugging the upper Bollinger band and are therefore far above the 50 day moving average…..and obviously the 200 day moving average as well. So it would not be surprising if from these levels, prices pulled back somewhat, perhaps at least to the 50 day moving average. That said, the bigger bullish factors are still in effect: prices are above the 200 day moving average; the 200 dma is sloping upwards; and our Simply Rule is still solidly bullish.

Despite the S&P’s progress last week, almost all of the US economic results were disappointing. Existing home sales missed. So did the house price index. PMI composite flash also missed. New home sales disappointed. The Kansas City manufacturing index dropped precipitously. And durable goods orders, both headline and ex-autos, missed badly. Only jobless claims came in a little stronger than expected.

But despite the bad week of US economic reports, the overall US economy is still not showing signs of falling into a recession, at least not imminently. Not only is recent GDP growth solidly above zero, but key economic indicators that often coincide with (as oppose to lag) US economic recessions are still all pointing to continued growth, even it means growth at a slower pace.

Considering that the current US recovery began in mid-2009, this recovery is now nine years old, meaning that it’s one of the longest recoveries on record in the US.  And given that most US economic recoveries last between five and seven years, this current recovery due to end sooner than later.

But until the key economic indicators begin to turn down, we can safely claim that the next US recession is not around the corner.

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