The professor who first established the relationship between the yield curve and recessions gives us his read on today's economy: He sees only a soft downturn ahead, but says “it’s naive to think you won’t have a drawdown” in stocks.
But the professor who first established the relationship between the yield curve and recessions says investors shouldn’t worry too much, if only because it will likely be a relatively shallow downturn — in part because people are expecting it.
But its Harvey’s more recent research in behavioral finance that he feels is also worthy of attention. He found that when the sudden economic slowdown came as a shock to investors and companies, the ensuing damage was heightened as businesses slashed investment and jobs. It helps, he said, that there has been a multitude of surveys and market-based indicators pointing to the increased alertness of corporate executives to the prospect of a recession.
More forward-looking survey data this week also pointed to growing trade-related uncertainty from businesses. The ISM manufacturing indicator stayed below 50% in September, indicating a contraction in factory activity, and its services counterpart fell sharply to 52.6%, well below the 55.3% estimate from MarketWatch-polled economists.The growth worries hasn’t seem to have dented the resilience of equity markets, however .The S&P 500 SPX, -0.45% and the Dow Jones Industrial Average DJIA, -0.
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