Declining profits have experts fearing a recession in 2020
Never mind that the stock market is hitting historic highs ā pay attention to profits.
Several money managers, some of whom say there will be a recession in 2020, are worried that profitź¦ levels are declining.
Profits, the lifeblood of an expanding economy and a booming stock market, are starting to run down, they note. Declining profits are often a warning sign of an imminent bear market and possiblšy a recession.
Weak earningš„s, said Richard Bernstein of Richard Bernstein Advisors, are the most important factor in the economy. āWhen corporate profits turn negative, corporations tend to lay people off,ā he said. Bernstein added that investors should also be ą½§concerned.
āYouāve never had a bear market thaā±t didnāt occur within six months of a profit recšession,ā in a report.
Several market observers put the chance of a recession this year at about 50 percent.
Speaking at the Legg Mason 2020 Outlook conference in November 2019, ClearBridge investment strategist Jeffrey Schulze said, āWe think the recession risk has been rising over the course of this year.ā Now, āhe added, the economy leans toward recession.
Schulzeās conclusion was drawn š ŗfrom key economic indexes, including financial stresses, retail sales, jobless claims and inflation. They, along with receding profit margins, show the economy is leaning toward recession, he argued.
The data often lead to a ź§recessiź¦«on six to nine months afterward, Schulze said. āWe do think there will be a recession scare sometime in the first quarter or second quarter,ā he added.
Still, Schulze said, that doesnāt guarantee one. He said thš ŗat several times over the past 20 years, the economy was primed for recession, but the Fed saved the day with interest-rate cuts.