A strategist is concerned about the possibility of a recession in the United States. A financial expert says that signs point to a coming economic downturn.
Chris Watling, CEO of the financial advisory company Longview Economics, told CNBC this week that “brutally bad” economic data shows that the US is on the verge of a recession.
The analyst says that the latest reading of the Leading Economic Index for the US, which fell by 1.2% in March and is now at its lowest level since November 2020, is one sign that a recession is coming.
Also, a recession usually happens about a year after the reversal of the Treasury yield curve, which happens when the yields on shorter-term securities rise above the yields on longer-term securities.
Since the curve turned down for the first time in March 2022, Watling says that a recession could be coming soon.
“Every time that has happened in the US, a slump has followed. So, I think it’s coming; it’s on the way.” It’s just a matter of timing,” he was reported to have said.
Last month, the inversion got worse, hitting negative 103.1 basis points. This was the biggest difference between short-term and long-term yields since September 1981, when the US economy was just starting to go into recession.
Watling also worried about what would happen to the stock market when the recession hit.
“We don’t think they’ll get through it without getting hurt. I don’t even know if that’s true. If you look at profit margins, you’ll see that they hit all-time highs in 2021 and a little bit in 2022.
When there’s a lot of inflation, you can get very good working leverage, which means you can get all-time high-profit margins. When there is a recession, we have to cut our earnings margins in half. You have to get them back to normal, and then you have to price in a slump,” he said.
Watling thinks that earnings predictions are “way too optimistic” right now, given the way the economy is going.