Investors offloaded a staggering $11.73 billion in US stocks just 2 weeks ago.
This massive outflow signals growing concern about an impending recession.
Economic Indicators Flash Warning Signs
The ISM PMI, a key economic indicator, shows new manufacturing orders entering a more severe contraction since January.
Many are interpreting this as a sign that a full-blown recession is just months away.
If the ISM PMI drops just a bit lower, we’ll enter a zone typically associated with US recessions.
Remember: During average recessions, US stocks decline by ± 30%.
Media Fuelled the Fire
Financial media outlets have been quick to feed into investor panic…
This has likely pushed many out of the market, contributing to increased volatility since July 2024.
But Wait, Is It Really That Bad?
When we zoom out, the stock market doesn’t mirror these concerns:
- It’s now less than a percentage point below its all-time high.
- The RSP index (equal-weighted S&P 500), hit new all-time highs recently.
Our members have been on the right side of this trend. We used the correction to add some new names. One of our largest positions, $SLV, is up 12% in 4 weeks.
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Contrast today’s price action with October 2007, just months before the 2008 recession:
- The RSP wasn’t making new highs.
- It was breaking below key moving averages.
- By recession onset, moving averages were curling downwards.
Today’s picture is substantially different.
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Job Market: A Key Piece of the Puzzle
A key concern right now is the softening job market.
Non-farm payrolls, a crucial job market indicator, shows job growth at its lowest since the pandemic.
But here’s the kicker: We’re still seeing job growth.
Historically, recessions are triggered when non-farm payrolls dip into negative territory.
Right now, this data isn’t recessionary yet.
Why Stocks Are Still High Despite Recession Talk
Total US payrolls and S&P 500 earnings are mirror images of each other.
As long as the economy is adding jobs, even at a slower rate, S&P 500 earnings are likely to climb higher.
What’s Next?
There are reasons to expect near-term volatility:
- August and September are seasonally weak months.
- Economic data is softening.
However, the macro data and technical structures aren’t extremely worrying.
In fact, potential Fed interest rate cuts could cool market fears and lead to another leg up.
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