Could a 2018 Recession Derail Trump’s Re-Election?

Posted On March 29, 2018 1:31 pm

Earlier this week, we noted the bond market could be a harbinger of a 2018 recession.  The yield curve has only flattened further over the past few days. The 10-year dropped another 15 basis points to 2.77 percent, suggesting the economy may be facing headwinds.

The stock market is also set to post its first losing quarter in over 5 years.

This action would seem to fly in the face of business-friendly tax policy and the increased budget, which should stimulate both business and consumer spending.

But as Rich Miller points out in this article in Bloomberg, the markets are a forward-looking discount mechanism, and we are entering the late stages of this current business cycle. This final push for growth  might peter out and bring a recession just ahead of Trump’s re-election bid in 2020.

Hefty tax cuts, stepped-up government spending and robust global growth should help insulate the economy against a downturn over the next two years, in spite of last week’s stock-market swoon. That would allow the expansion that began in 2009 to become America’s longest ever.

But after that, watch out, economists warn. Fading fiscal stimulus, higher and rising interest rates, and cresting world demand could leave the economy vulnerable to a contraction — just in time for the presidential campaign.

“2020 is a real inflection point,” said Mark Zandi, chief economist at Moody’s Analytics Inc., in West Chester, Pennsylvania.

It’s not only President Donald Trump who needs to worry after claiming his policies of deregulation, deficit-widening fiscal measures and trade protectionism will lift the world’s largest economy out of a decade of mediocre growth. Investors should fret, too. A recession — or more accurately, the anticipation of one — is often the trigger for bear markets in stocks.

 Related: Can Bonds Predict Recession? Here’s What You Need to Know. 

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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