The Chance Of A Recession Is 40%

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In his Daily Market Notes report to investors, while commenting on a recession, Louis Navellier wrote:  

Recession or Recovery?

My favorite economist, Ed Yardeni, is now estimating that the chance of a recession is 40%.  Specifically, Yardeni cited that (1) investors are in a foul mood, (2) consumer sentiment has dropped sharply, (3) regional business surveys are depressed, (4) consumers are losing purchasing power and (5) there is a chance of a credit crunch.

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After pointing out these five factors increasing the odds of a recession, Yardeni then pointed out in his Wednesday briefing that (1) analysts are still revising their 2022 & 2033 earnings estimated higher, and (2) there is aggressive insider buying, which bodes well for a stock market recovery.

Speaking of a stock market recovery, Bespoke Investment Group issued a good report after NASDAQ’s Tuesday plunge that showed that there have only been six 30% corrections from the highs and the median duration was 127 days.  Coincidently, after the Tuesday NASDAQ selloff, the correction was 127 days old.  Historically, the NASDAQ Composite has rallied a median of 1.4% (1 month), 3.5% (3 months), 6.7% (6 months), and 14.4% (1 year) after its six previous 30% drawdowns.

Single-Family Home Sales Plunge

The Commerce Department on Tuesday announced that new single-family home sales in April plunged 16.6% to an annual pace of 591,000 and are now running 26.9% lower than 12 months ago.  This was well the biggest monthly drop in nine years and substantially below economists’ consensus estimate of 749,000.  The median new home price is now $450,000, which is up 19.6% in the past 12 months.  So between high new home prices combined with higher mortgage rates (now 5.25%, up from 3% in the beginning of the year), these two factors are now apparently adversely impeding new home sales. 

Interestingly, the Commerce Department on Wednesday announced that durable goods orders rose 0.4% in April, which was below economists’ consensus estimate of a 0.6% increase.  The March durable goods orders were revised down to a 0.6% increase.  Core durable goods in April increased 0.3%, which was substantially below economists’ consensus estimate of 0.6%, and a revised 1.2% increase in core durable goods in March.

Downward GDP

Although April was clearly a big deceleration for durable goods, unfilled orders rose 0.5% for the 20th straight monthly increase.  Furthermore, inventories of manufactured goods rose 0.8% in April for the 15th straight monthly increase.  In the wake of the big drop in new home sales as well as decelerating durable goods orders, I expect some downward revisions to second-quarter GDP growth.

Coffee Beans

Inflation is at the forefront of residents’ minds in several countries around the world according to a global survey. In the UK, 52 percent of respondents said it was one of their country’s leading problems in 2021/22, up from 35 percent in 2020/21. Other European countries are also showing signs of growing worry over the tightening of purse strings, including Germany (from 33 percent to 44 percent), Spain (41 percent to 51 percent) and Italy (from 29 percent to 37 percent). Russians harbor the most worries over inflation (more than 70 percent.) Source: Statista. See the full story here.