After several strong years, stock markets look rattled as 2018 draws to a close. A mix of factors signal a heightened risk of a slowdown, but an outright recession is far from certain.
Investors panic. Stocks down another 500 points. Is Wall Street trying to tell us something? Typically, a hard fall in share prices comes during or a few months before a recession. So far, US stock indexes like the Standard & Poor’s 500 are down a little over 10 percent from their record highs set a few months ago. Among traders, that’s a “correction” but hardly the 20 percent decline that would signal a full-on bear market and give a clearer warning of possible recession. The concerns are real: Interest rates are rising, making it more expensive for businesses to borrow, while the fiscal stimulus from US tax cuts is wearing off. The trade-war atmosphere between the US and China doesn’t help. Some global markets, including China’s and Germany’s, are already in bear-market terrain (see chart). But several forecasters say a slowing economy does not mean outright recession. Says Michael Klein, an economist at Tufts University: “There are lots of things that could happen that could help the economy keep going.”
The big downdrafts in US and global stock markets have spooked investors and raised a question: Is something suddenly going very wrong for the economy?
There are real reasons for concern: Central banks have been raising interest rates, making it more expensive for businesses to borrow. Finance experts say the fiscal stimulus from US tax cuts is wearing off. And despite a pause for negotiation, a trade-war atmosphere between the US and China shows no signs of resolution.
But some perspective is in order: Stocks always reflect a mix of factors on investors’ collective radar, and it’s quite common for some turbulence to occur in Wall Street even when no recession is on the way for Main Street.
So far US stock indexes like the Standard & Poor’s 500 are in “correction” territory. That means stock prices are down more than 10 percent from their all-time highs set a few months ago, but still far from the 20 percent declines that would signal a full-on bear market and give a clearer warning of possible recession.
