Recession Review: October 2019

I've read that October, from a historical perspective, tends to be a "spooky" month for markets. That is to say, October can be volatile and see big drops. I haven't done a detailed analysis on this but I imagine a big portion of this has to do with Black Monday in 1987.

Fortunately, there was no Black Monday 2.0 this year! In fact, overall, the market did really well - up almost 5%, which is surprising to me since I hadn't looked at the start-to-finish results until I sat down to write this. That seems like the opposite of "spooky" to me. If we are sticking to the theme maybe we can just call it "scary good?"

Switching from the market side to the economic side, the first official estimate for 2019Q3 GDP results came in and were slightly above expectations. In general, estimates were fairly conservative but a beat is welcome news.

The Monthly Endless Metrics Recession Indicator - October 2019

Looking at the monthly indicator, which was introduced for the last update in September, there was a very small increase from September to October. That being said, I'm not going to extrapolate based on some small deviations that could just be noise.

The Endless Metrics Recession Indicator - October 2019

Now that 2019Q3 has been released, an additional quarter for the EMRI model has been added covering 2019Q4. The tracker moves to its highest level in 2019Q4 based on current forecasted data and leading indicators. While this is interesting in terms of showing elevated recession risk, the EMRI is a binary indicator. Either there is a recession or not. And, as of now, there is not!

What to Watch

Like last month, will the Fed continue to cut? It seems they are done for now and raises are unlikely until inflation picks up. The jobs report will be interesting - as always!

2019Q4 and Beyond

Early GDP forecasts look worse for 2019Q4 than 2019Q3...but not bad enough to indicate a recession. I'm definitely going to keep an eye on the economic data coming in.

If I had to guess...

If I was forced to make a guess on when the next recession would start, I would keep to my previous call of the second half of 2020. If I had to pick a quarter...I think 2020Q3. The leading indicators, while not very accurate this far out, are pointing to a difficult patch at that time.

I will likely be wrong but, again, this is "if I had to guess!" It won't be until 2020Q2 that we will have any concrete data to confirm or deny this guess. So, we have some time. Until then, let's keep the economy moving!

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