Could a 2018 Recession Derail Trump’s Re-Election?
Posted On March 29, 2018 1:31 pm
By: Steve Smith
By: Steve Smith
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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