No Sign Of Recession…. The world’s markets just don’t have enough oomph to continue their rally as investors anxious about the widespread pullback began taking profits because there are finally some profits to take. Meanwhile concerns about a recession continue despite every indication that that the U.S. economy is in the clear, at least for now.
Markets in meltdown
Dow Jones Industrial Average futures plunged 50 points this morning and are on track to snap the five-day winning streak they’ve been on, which is the longest climb in more than four months. The S&P 500 also struggled today, tumbling below the 2000 mark, and Asian benchmarks slumped too, with the Nikkei, the Hang Seng, the Strait Times, and the TAIEX all recording losses for the day, although the Shanghai Stock Market managed to post a very small increase at the end of China’s regular trading hours. International bond yields are falling as well, and the 10-year Treasury yield fell six basis points.
Most other markets also saw selloffs today, which Gluskin Sheff Chief Economist David Rosenberg speculated this morning is the result of profit taking. It would be unsurprising if this is the case as there have been very little profits to take since the beginning of the year as many asset classes have struggled.
Nothing derails gold prices
One exception is gold, however, which is continuing its relatively long-running rally, and Rosenberg notes that this rally has dragged on without the markets even paying heed to whether the environment is a risk-on or risk-off one at the moment. He added that is a “true signpost of a durable rally.” Gold is now testing the highest levels observed in more than a year and is up by more than 20% since its lows, notes the economist.
He adds that the spread of negative interest rate policies in other markets is causing fear of a recession, and gold is riding on these worries. The Fed has even talked about bringing negative interest rates to the U.S., although data points indicate that the U.S. central bank doesn’t need them.
Overnight data triggers a pullback
In addition to profit taking, Rosenberg warned that some data which came out overnight probably also caused the broad selloff we saw today. For one thing, Japan reported a decline of 1.1% in real gross domestic product for the fourth quarter. China’s exports slid 25.4% year over year, which was roughly twice as worse as the markets were expecting.
Data that was released this morning wasn’t much better either, he noted, with the National Federation of Independent Businesses’ Small Business Index falling to its lowest level in two years at 92.9 for last month, continuing a multi-month decline. Manpower’s Employment Outlook Survey indicated a slight decline in net hiring plans, which fell from 17% to 16% for the first quarter.
The Fed’s Labor Market Conditions Index declined 2.4 points in February, marking the worst reading since June 2009.
No Sign Of Recession – The jobs market isn’t really that bad
Rosenberg added some extra color on the jobs data for the U.S., however, noting that the aggregate hours worked index is at a 2.2% annual growth rate.
“So even without any productivity gains, this is where the pace of U.S. economic activity is at – not hot, not cold, but certainly not a recession,” Rosenberg wrote. “When recessions start, the pace in this metric has basically stagnated or turned negative.”
Further, last month the U.S. economy added 325,000 jobs, and over the last four months, it has added more than 1 million jobs.
The employment-to-population ratio is also up month over month, he noted, climbing for four consecutive months and reaching its highest level in nearly seven years.
Further, the number of discouraged workers has tumbled 18% over the last year, and the unemployment rate among college graduates is just 2.5%.