Stock market's eerie parallels to September 2007 should raise recession fears

[ffr]

Read this paragraph carefully in light of the Fed’s latest rate cut:

Since last year real GDP growth in the U.S. has been slowing. The chair of the Federal Reserve has been signaling that while growth is slowing, there is no recession risk and the Fed is forecasting continued positive growth. Warning signs in the economy, including an inverted yield curve, have been ignored and stock markets continued to make new highs in July. In August a correction took a place and subsequently a rally ensued into early September. On September 18 the Fed cut rates.

Sound familiar? It fairly describes market and economic conditions in the U.S. over the past couple of months. Except that this paragraph would be as true for the U.S. economy and stock market in September 2007 as it is today. Consider that 12 years ago the yield curve was inverted and U.S. economic growth was markedly slower than it had been in 2006. Yet the Standard & Poor’s 500 SPX, -0.63% made a new high in July 2007 (same as 2019), there was an August correction (same as 2019), and then the Fed cut rates on September 18 (ditto — same day even).

2007

Link to tweet

- Marketwatch

[Johnny2X2X]

1. Same people saying the same things

Today Powell was talking about continued 2.2% GDP growth when the last quarter was below that and the next quarter is surely going to be lower than that.

It's their job to try to make the economy seem better than it is. And Trump is really pressuring them in that regard. Hard to predict, but we've had mostly negative signs this year.

[wishstar]

2. Interest rate cuts are definitely aimed to prop up a wobbly economy

and Fed having to rescue the overnight lending market 2 days in a row raises questions.

Trump's tariffs are reducing GDP and US exports in the midst of a global slowdown.

Most of us did not have a clue when the last great recession was going to hit and that some stocks would become totally worthless (such as Wachovia Bank) due to recklessness of banking and investment managers and inability of debtors to continue making payments on their loans. Credit card debt is extremely high again.

[Wellstone ruled]

3. Well well,the winners in this debate today

is the Wall Street and D.C. so called Market Pundit's. Everyone with have a brain knows damn well,we are in Recession in several Areas of the Country and it is a By-Coastal Economy that is keeping the rest of the Country afloat.

Any Doubt,talk to your Relatives in Rural Minnesota,Iowa,Wisconsin,South Dakota,and North Dakota as well as Michigan,Ohio,Indiana,Illinois or any region that is Ag dependent. Every recession has started some where in the Commodities Market related type of support or lack there of. Running joke with our Relatives in the Mid West is,if you don't have a Windmill or Oil Well on your land,get ready to take the keys to the Bank.

[edhopper]

4. I also see a Slowdown

but of course this Administration can easily mismanage it into a Recession.
But there are not the out of control lending and bubble that there was in 2007.
I don't see the economists who saw 2008 coming saying we are in the same place.
Not even Robert Schiller.

[gldstwmn]

5. The Fed's overnight rate skyrocketed

last night and protocols had to be put in place to get it under control today. We're in trouble again and I don't know if we can stop it.

[alwaysinasnit]

6. Corporate debt levels could be the unexploded bomb IMHO.

https://www.marketwatch.com/story/these-5-charts-warn-that-the-us-corporate-debt-party-is-getting-out-of-hand-2018-11-29

......

"Corporate debt levels relative to U.S. gross domestic product have pushed past the previous peak hit during the 2008 financial crisis. Some investors say U.S. corporations are in a better position to service those debts thanks to years of quantitative easing and low-interest rate policies. yet in an ominous sign, nonfinancial corporate debt as share of GDP, a widely-watched measure of corporate indebtedness, has risen sharply higher before each of the past three economic downturns."

......

[TheRealNorth]

7. If you plan to retire in the next 7 years and own stock

I would be looking to get out and move your money to something relatively safe (municipal bonds, etc).

If in a mutual fund, I would probably be looking to get out or move to a low-risk fund.

I don't anticipate this next recession will be as deep- unless there is some sort of systematic issue (like banks wrapping their money up in risky things like derivatives). If Republicans force down an austerity pathway, the climb out may be long.