Weekly Economic Report
For most of 2018 we have fought a lonely battle arguing that while tax cuts and spending stimulus would spark strong growth in 2018 – maybe over 4.0% -- the payback was a likely slowdown in 2019. We tried to be very clear we did not expect a traditional recession, with negative growth for two or more quarters, but a stall as in 2000, 2012 and 2015. We have argued that the ramifications for equities could be far more severe with a 25% sell off possible. However, the recent 10% correction in the S&P500, and even deeper decline in the NASDAQ, has resulted in slowdown scenarios from both Goldman Sachs and Morgan Stanley. Neither sees a recession, but this is the first mainstream discussion we have seen of the potential consequences of both tighter monetary policy and ebbing fiscal stimulus. The impact of trade is a downside risk to these scenarios – but the 90 day truce agreed to in Argentina should give everyone more time to evaluate the consequences of tariff hikes so far.