Lloyd Christmas: What do you think the chances are of a guy like you and a girl like me… ending up together?
Mary Swanson: Well, Lloyd, that’s difficult to say. I mean, we don’t really…
Lloyd Christmas: Hit me with it! Just give it to me straight! I came a long way just to see you, Mary. The least you can do is level with me. What are my chances?
Mary Swanson: Not good.
Lloyd Christmas: You mean, not good like one out of a hundred?
Mary Swanson: I’d say more like one out of a million.
Lloyd Christmas: So you’re telling me there’s a chance… YEAH!
(Dumb and Dumber, 1994)
In the question and answer period of today’s Semiannual Monetary Policy Report to the Congress, U.S. Federal Reserve Chair Janet Yellen conceded there’s a chance of a recession. “There is always some chance of recession in any year. But the evidence suggests that expansions don’t die of old age.”
I also don’t believe the U.S. is headed towards a recession this year, however, the headwind that the global economy has felt for some time, is finally being felt on the foreheads of those on Wall Street. The stock market, at the time of this report, is down 378.99 or 2.38% from yesterday’s close and now sits close to 15,386.82 -where I forecasted in August 2015 the market would be on August 30, 2015. I know my timing was off, but I felt at the beginning of this year, the market would reach those lows, and lower, but by mid-year as companies begin to report Q2 earnings; the speed of this drop is amazing.
The expansion hasn’t died of old age, but it was never very spry to begin with. The U.S. GDP growth rate, per the U.S. Department of Commerce, for 2015 was the same as 2014: 2.5%. And, 2016 has been forecasted to be around that level as well. I still predict the economy will shamble along and the Federal Reserve will resist increasing the Federal Fund rate in March 2016, however, it should, for continuity, increase the rates in March. What ultimately will get the world humming again is what brought the great growth for the last six years: China. However, China is transitioning from a manufacturing economy to a service economy, thus the big building boom is gone. No more Summer Olympic Games or construction of buildings for the sake of building.
The bottom line is that the stock market will trade lower for the near term as it reluctantly accepts the new economic paradigm.