Amid current concerns will the US equities market collapse or is it ready for a takeoff?Posted on Tuesday, October 16 2018 at 4:13 pm GMT+0000
There are no doubt that there are some factors that raise concern:
– IMF’s reduction of the global growth prospects.
– sharp dropdowns experienced by major stock indices, including Chinese stocks, which have fallen 20% since the beginning of the year, German stocks distanced itself nearly 16% last-year-high, and Italian stock by more than 10%, in addition to emerging markets and threats facing them.
– elevated bond yields, offering an attractive alternative to stocks.
– US-China trade tensions, and the rift between the US and Saudi Arabia
These factors raise significant concerns, and indicate that the markets won’t easily maintain the previous years’ momentum.
But that does not mean that we are facing an inevitable collapse in the near future. The economy is growing at a 3% pace this year and is expected to grow at 2.5% pace next year and unemployment rate is at its lowest levels.
In fact, there are four factors that generally point towards a recession or an economic bubble:
– Accelerated inflation rates
– The sharp decreases in corporate profits
– The aggressive monetary policy tightening
– Economic imbalance
The US Economy didn’t reflect yet any of those signals, and therefore it might witness a minor slowdown, but talking about a collapse is still early, and this earning season may be the motive behind a return of the market’s Bullish momentum.