Donald Trump began his reign in the Oval Office on January 20, 2017, inheriting an economy with a seven-year bull market, low inflation, and a low unemployment rate of less than 5%. After, the stock market moved on to set new all-time record highs while interest rates still remained close to their historic lows. That’s where we were and it all looked pretty dammed rosy, didn’t it?
But, with that kind of continued trend, one that has been almost a continuum of improvement ever since 2009 began, it is an inevitable fact that at some time we’d have to face the reality that an economic recession will come. It always does.
Right now sitting on the cusp of the longest period of economic improvement in our history (approaching 10 years of steady growth), it is highly likely that the Trump administration will have to cope with an economic recession. Is that about to happen now? Is a recession on the financial horizon in 2019?
Timing Is Everything, Isn’t It?
Economies run in boom-and-bust cycles, and it’s been a long time, relatively speaking, since we last had a bust. The average economic expansion runs for about five years and we are riding year 10 right now. Politics aside, the U.S. is overdue for a recession. That’s just a fact.
The Trump Factor is a Real Thing
Uncertainty plus unpredictable growth equals high risk, and markets just don’t like that. Trump’s presidency has been a series of economic shocks and confusion all across the world ever since the day he stepped into the Oval Office. It can’t be stated strongly enough: if you wanted change and a “new” way of doing things in Washington, than you got exactly what you bargained for!
Let’s Look at the Situation Right Now
Asian markets have fallen, the peso has declined, and the Dow Jones average has lost thousands of points and erased all of its gains made over the past year. A lot of Trump’s actions and comments and his chaotic and unpredictable “new” ways of doing things have been the cause. Trump has been sending regular shock waves and reverberations through the U.S. and the world’s stock markets, and the markets always hate uncertainty.
But the uncertainty over President Trump and his policies doesn’t simply mean higher volatility over the next couple of months. It can actually lead to serious economic hardship. Here’s what I mean.
Uncertainty Scares Me and Just About Everyone Else
Uncertainty plus slowing economic growth equals risk. Domestically, it’s true that Trump’s crowning achievements thus far have been the tax cuts and regulatory rollbacks. We all saw what happened to the market up until September 2018 as it responded to these policies by continuing the bull market. But the ride appears to be coming to an end with a hard landing for all of us—and possibly for your 401(k) retirement plans—and that has people worried.
What May Trigger a Recession?
We are hearing an awful lot of talk about the Fed and the potentially rising interest rates coming in 2019 to help keep the inflation rate under control. That’s a stance completely opposed by President Trump and many agree with him. We just don’t know when and if and how often rates will go up, but coming off 2018 it appears that we may be facing more increases.
And let’s face it, the President of the United States in in some pretty hot water these days. That situation can affect the U.S. economy “bigly”. With the “blue wave” of the recent midterm elections, the House Democrats now have the Special Counsel investigation in their sights. And even if Robert Mueller’s initial Russia investigation turns up zilch on Russian collusion, they will still investigate and subpoena Trump til kingdom come (just like the Italians did to Prime Minister Berlusconi). Indeed, many top Democrats like California Representative Adam Schiff have already promised to do so. That will make Trump and the economy and markets even more volatile, if that is even possible.
Rumors and threats of pending criminal indictments are likely to last on and off throughout 2019. It could even be a nightmare scenario for Trump and his administration. So, how do you presume that may affect our economy, the world, and your finances? With his approval rating number looking like a temperature reading at the North Pole, it spells real trouble for Trump and us along with it.
What the Experts Have to Say
I watch the news every day and if you don’t, first a big congratulations to you because you are smarter than I am. But, if you don’t watch, here’s a recap as to what the political pundits have to say about Mr. Trump and our future:
- If you are a fan, you love everything he does, says, eats and tweets…period. He’s a stable genius.
- If you are not a fan, you think Trump is crazy, dumb, has no idea what he is doing. Even worse, he is a fraud and a criminal.
That pretty much describes what goes on every day these days, and you only have to fill in the small details of actual events to make any specifics current. But, either way you think, if a recession hits, you are going to feel it. I guess the only difference here is that Trump loyalists will be shocked and Trump bashers won’t be.
The Economic Score as of Today
It’s now 2019! The last quarter has been a scary one for the Trump economy. The major equity markets are all in the red now from the end of last year, with many major emerging markets down over 15%. European and Asian equity markets are recording double-digit losses.
The S&P 500 hit a record high on September 21 and then quickly sold off because of comments from Federal Reserve Chairman Jerome Powell. And Trump then jumped down Powell’s throat. Powell has started talking more dovish, but the damage may already have been done. In November at the Economic Club in New York, Powell hinted that the hiking cycle was coming to an end and at the same time, Trump has been said to be contemplating firing him. Does that say stability?
The national debt is soaring to $21 trillion which is even worse than before Trump, because of the tax cuts and the huge expenditures he’s administered like the $710 billion increase in military spending. That’s only the tip of the spending iceberg. Want to add in another $25 billion for a wall? Our national debt is bordering on hopeless obscenity and something will have to give on it soon.
Now our government is in its second week of “shutdown”. Does that say stability?
Then there’s the 4%, 5%, or 6% GDP growth forecast that Trump spouts about. If GDP slows, wages don’t start making a real uptick, inflation increases, and world politics continue to be chaotic, does that spell stability? FYI, GDP is slipping in the 4th quarter. We may be on our way back down to numbers in the low 2%’s or even the 1%’s! A weak economy, coupled with the constant barrage of negative news about the president, will continue to drive Trump’s approval rating into the ground. He’d lose the people in the center completely and congress would have their case for their impeachment. Does that say stability?
Are We There Yet?
If the market perceives more than one more interest rate hike is coming, we are on the edge. In simple terms, the current environment means investors are becoming risk-averse. Growing pockets of economic weakness such as housing and auto sales, coupled with the peak of employment in September, gives the market some hope that the Fed will be dovish in 2019. But will they be?
And Then There’s the China Trade War
China is in the crosshairs of an economic trade war. The frictions between the U.S and China will only intensify in 2019. Don’t expect that to be a good thing for the markets either.
The U.S. economy also has to worry about European politics as it makes a weak growth backdrop for us. So if the room looks cloudy, there is a reason or reasons for it.
If I knew for sure what was going to happen in 2019, I might be able to make all the right moves financially and protect all of my assets. I don’t and neither does anyone else for sure. But one thing is clear enough, no matter who is sitting in the White House these days, economic changes are bound to happen sooner or later and most economist say sooner has the inside track.
If you are in it for the long haul and aren’t counting your pennies right now in retirement, then sitting tight works most of the time because guess what: what goes around comes around. In the markets, all of the fear and loathing will be all peaches and cream at some point once again.
However, short term investors and those who are trying to get by while in retirement may need to think about taking the money and running before it is too late!
Are you concerned we are on the brink of an economic recession? Are you into the market and at high risk? What are you doing with your money to make it grow and reduce risk, too?