Friday, January 22, 2016

Stocks Selloff Doesn't Signal Recession But EAC Does

The majority, a day late and dollar short in terms of timing and trends, follows the simplicity of entertainment only headlines. The short- to intermediate-term stock trends is neither uniquely 'scary' or indicative of recession ahead (chart 1 and 2). The definition of scary depends on the following: (1) your age, (2) whether or not your investment discipline is aligned with standing with the majority or minority, and (3) if you have access to technology to study history and/or a reader of Insights.

With that said, the 'crazy' market sell off may not signal a recession ahead, but the Economic Activity Composite (EAC) does.

Chart 1 NYSE Intermediate Term Volume Momentum Oscillator

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Headline: Crazy market selloff doesn’t signal a recession

The almost 10% decline in U.S. stocks so far this year—clocking in at the second-worst start to the year since 1929—has amped up concern among some investors about the R word: recession.

As Goldman Sachs highlighted in a research note Thursday, large selloffs do not necessarily signal recessions, technically defined as two consecutive quarters of negative economic growth as measured by GDP. Goldman cited the 19% decline in the S&P 500 between July and October of 2011 -- which did not coincide with or precede a recession -- as an example.



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