Summary
- Despite falling rates, flows surge into money market funds just like in 2007/2008.
- If this is how the stock market reflects gloom and doom, then perhaps the pessimist investor should shift the narrative from recession/lower stocks to possible recession/higher stocks.
- The US-China trade war is still ongoing. Despite the recent progress, there's no signed deal, and the markets grow impatient. In fact, China offloaded massive Treasuries, the highest since 2016.
- This idea was discussed in more depth with members of my private investing community, The Lead-Lag Report. Get started today »
A recession is predominantly for the middle class. Where I come from, the majority of people have always lived in a recession. - Curtis Jackson
The investing world prepares for recession. Since the 2008 financial crisis, this is a time of impressive flows into safe-haven assets.
A Lead-Lag Report I just wrote highlights the flight out of the US stock market. During Q3, investors pulled $36.9 billion from US equities and another $23 billion from international equities. It appears a risk-off sentiment among investors does exist.
Moreover, a recent survey shows that over $300 billion flew into money market funds in the past six months. This is the largest flight to safe-haven assets since the 2008 crisis. Despite falling rates, flows surge into money market funds just like in 2007/2008.
Talking about falling rates, the market is pricing a whopping 75% chance for another rate cut at the next Fed meeting on October 30. With such a high probability, the Fed usually delivers. The press conference to follow the Federal Open Market Statement (FOMC) will be more than interesting, considering the press representatives have the chance to ask about the recent T-bill purchases announced by the Fed. Expect volatility and the USD to move all over the dashboard.
If the gloomy picture described above is not enough, the US-China trade war is still ongoing. Despite the recent progress, there's no signed deal, and the markets grow impatient. In fact, China offloaded massive Treasuries, the highest since 2016, according to the latest data. It is, for sure, a consequence of the trade war.
Finally, on the same pessimistic note, a recent report from the Peterson Institute reveals that uncertainty and other factors are dragging down the global economy. In the US, the expansion has moderated, albeit the economy still grows but at a slower pace. In the UK, Brexit drags down growth while Japan, India, Russia, Brazil, and China each have their own reason for slowing growth ahead.
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Author Bio:
This article was written by Michael A. Gayed. An author on Seeking Alpha and founder of the Lead Lag Report.
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