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Why Wall Street freaks out and economists do not



But here's the thing: Economists generally do not see any threat of downturn. Yes, the growth of the blockbuster of 2018 is likely to abate. And yes, big risks are imminent, especially a mistake by the Federal Reserve or an escalation of the US-China trade war – or both.

Nevertheless, some market veterans claim that a panicky Wall Street pre-prizes a recession that is unlikely to be achieved by 2020.

"This is the funny thing about the stock market, it's an unusual indicator because it's dominated by emotions," said Kristina Hooper, global market strategist at Invesco. "We have to be careful not to assume that we are in recession."

It's a fresh reminder that the stock market is not the economy.

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The chances of a downturn have certainly increased. And it is possible that economists did not see this coming.

PIMCO estimates the likelihood of a recession to be 30% in the next 12 months, the highest in total economic expansion. However, this still means a 70% chance that there will be no recession.

The economists at Goldman Sachs hold the chance of a recession in 2019 at just 10%. "We expect the current expansion in the US to continue over the next few years," said Goldman Sachs, US equity strategist David Kostin, this month in a customer report.

The market does not say that, of course.

The Nasdaq collapsed last week into its first bear market since the Great Recession. And the Dow had the worst week since 2008. The bull market, measured by the S & P 500, is clearly under siege. Investors are deeply concerned about slowing economic growth and an overly aggressive Federal Reserve.

"Markets seem to have gotten involved in the immediate mitigation history," wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, to clients. "But the mitigation tale is weak."

Shepherdson sees no recession – and a "mild" – until the first half of 2020.

Needed for easy money

So what's behind this gap between investors and economists? ?

One potential factor: Wall Street relies on simple money, a powerful force slowly declining after a decade. The Fed has raised interest rates nine times in three years.

"You have a Fed less interested in being a reassuring nanny," Hooper said.

The US Federal Reserve has also shrunk its massive balance sheet by almost half a trillion, further depleting the liquidity of vulnerable assets.

"It's done pretty quickly, which of course increases anxiety." "Hooper said.

History shows that if economists are right and there is no recession on the horizon, the market could still have room for growth."

Since 1945, US stocks have gained an average of 12% in the year before the first six months before the onset of a recession, according to UBS.

"We believe that holding investments pays off, though investors should prepare for greater volatility," said Mark Haefele, global chief investment officer of UBS Global Wealth Management, in a customer report. "Growth is slowing down, but we do not expect a recession."

2. Market Breather: The stock market is open for half a day on Monday and closed on Tuesday for Christmas. The break can not come soon enough.

December tends to end higher as most traders spend the last week of the month on vacation. But even a Santa Claus rally could not prevent the worst December in the stock markets since the Great Depression.
. 3 Apartment Numbers: This year will give investors another opportunity to determine the development of the real estate market.

Despite high consumer confidence and low unemployment, 2018 home sales have taken place. Houses are too expensive for many buyers, and the US Federal Reserve's efforts to ease the economy from a zero-zero rate have increased mortgage costs.

The S & P case According to the economists polled by Refinitiv, the home price index is likely to have risen 4.9% on Wednesday in October. On Thursday, the US Census Bureau anticipates a 2.5% rise in new home sales in November, and the National Association of Realtors expects home sales of existing homes to increase by 0.5% in November.

4. Coming Week:

Monday – US Markets close at 13.00 ET for Christmas Eve

Tuesday – Markets Closed for Christmas

Wednesday – S & P Case-Shiller Home Price Index

Thursday – Consumer Confidence for December and New Home Sales for November

Friday – Unsold Home Sales for November

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