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Investors in the US are concerned about weak GDP growth, the Fed's uncertainty about future rate cuts, the endless trade war between China and China, and the reversal of the yield curve . Investors are looking for options to overcome the omens indicating a recession.
Reversal of returns leads to recession-related worries
The yield curve represents the yield of the fixed-interest securities plotted against the length of time they must expire. A reversal of the yield curve occurs when short-term returns fall below long-term returns.
This reversal is a sign that investors have a bleak view of the short-term economic outlook. Despite the risk of reinvestment rates, short-term securities appear to offer higher returns than long-term securities during periods of high market volatility.
On August 14, for the first time since 2005, the difference between the yield on the 10-year and the 2-year notes decreased and the yield on the 2-year note fell below the curve of the first. According to economists, a reversal of the yield curve preceded the recessions of the last 50 years.
The phenomenon occurred three times in one week, August 14th and August 21st and 22nd. The gap between 10-year and 2-year reference treasury bills closed at a positive 1.8 basis points on August 21. The market closed with the yield at 10 years at 1.587% and the rate at 2 years at 1.569%.
On August 22, although the reversal was brief, she shook the market for a moment. At 16:05 ET, the yield curve was reversed, with the 2-year Treasury yield rising to 1.614%, higher than the one in the decade at 1.611%.
An impact of the first inversion could be observed on bank stocks as it is difficult to profit from lending money in this environment. Bank of America BAC Corporation, JPMorgan Chase & amp; Cie JPM and Citigroup Inc. C shares fell 4.6%, 4.2% and 5.3%, respectively, on August 14th.
Global economic slowdown
Both the United States and China presented data that signal a global economic slowdown. In the United States, GDP growth in the second quarter of 2019 increased by 2.1%, compared to 4.1% a year ago. While GDP growth in China in the second quarter slowed down to 6.2% from 6.4% in the first quarter of the year. This is the lowest growth rate of the last three decades.
On August 14, official data from the Chinese authorities showed that growth in industrial output slowed to 4.8% in July, the lowest growth in 17 years. On the other side of the globe, euro area GDP grew 0.2% from one quarter to the next, marking a sharp slowdown compared to 0.4% growth recorded in the first quarter of this year.
Moreover, the same day, Germany recorded a drop in its GDP of 0.1% from one quarter to the next, bringing the annual growth rate to 0.4% in the second quarter, compared to 0.9% in the first quarter. Germany narrowly avoided a recession last year, but now seems to be overshadowed by a negative impression of GDP.
As the Fed defines the rate cut as a "mid-cycle adjustment" and not as a "pre-set price" for further easing, investors seem worried. In addition, the trade war that prevails between the United States and China is further slowing the economy. This forces investors to rush to safe havens.
Enter these 5 actions – Be safe
The current signs of economic slowdown and a reversal of the yield curve make the market very volatile. Utilities and consumer staples are a safe option as they enjoy steady demand even in times of recession and will also be stable in a bear market.
We restricted our search by the number of utilities and consumer goods businesses. These five stocks also have Zacks # 2 (buy) ranking. You can see You will find here the complete list of today's Zacks # 1 stocks.
Unitil Corporation UTL is a publicly traded utility company serving New Hampshire, Massachusetts and Maine in electricity and natural gas. Expected growth in Unilil's profits for the current year is 4%. The Zacks consensus estimate of current year profits has improved 0.9% over the past 60 days.
American Water Company AWR is a publicly traded utility conglomerate. It provides water service to customers in the north, coasts and southern California. The company also distributes electricity to customers in California's Big Bear Recreation Area. The expected growth rate of AWR's profits for the current year is 18.6%. The Zacks consensus estimate of current year revenues has improved 2.5% over the past 60 days.
Chesapeake Utilities Corporation CPK is a publicly traded utility company specializing in the distribution and transportation of natural gas, propane distribution and marketing. The expected growth in the company's profits for the current year is 12.7%. The Zacks consensus estimate of current year profits has improved 0.5% over the past 60 days.
The Procter & amp; Gamble Company PG is a publicly traded company that manufactures and sells a range of branded packaged consumer products. It focuses on beauty, grooming, health care, fabric care and home care, and baby care and family care.
Procter & amp; Gamble's expected earnings growth for the current year is 7.1%. The Zacks consensus estimate for current year profits has improved 1.9% over the past 60 days.
General Mills, Inc. SIG is a manufacturer and distributor of branded consumer foods sold in retail and publicly traded stores. Expected earnings growth for the current year is 4.7%. The Zacks consensus estimate for current year profits has improved 0.6% over the past 60 days.
The next Wall Street Amazon
Vice President Zacks, Kevin Matras, believes that this well-known title has just begun to climb to become one of the most important investments of all time. This is a unique opportunity for a generation to invest in pure engineering.
Click for more details & gt; & gt;"data-reactid =" 18 "> First and foremost, a declining economy and then a reversal of the yield curve have left investors looking for ways to protect themselves in the event of a recession. The inversion of the yield curve occurred three times in fifteen days August 14, August 21 and August 22. In the past, the inversion of the yield curve of 2 to 10 years has has always been followed by recessions and investors can not ignore this indicator.
Investors in the US are concerned about weak GDP growth, the Fed's uncertainty about future rate cuts, the endless trade war between China and China, and the reversal of the yield curve . Investors are looking for options to overcome the omens indicating a recession.
Reversal of returns leads to recession-related worries
The yield curve represents the yield of the fixed-interest securities plotted against the length of time they must expire. A reversal of the yield curve occurs when short-term returns fall below long-term returns.
This reversal is a sign that investors have a bleak view of the short-term economic outlook. Despite the risk of reinvestment rates, short-term securities appear to offer higher returns than long-term securities during periods of high market volatility.
On August 14, for the first time since 2005, the difference between the yield on the 10-year and the 2-year notes decreased and the yield on the 2-year note fell below the curve of the first. According to economists, a reversal of the yield curve preceded the recessions of the last 50 years.
The phenomenon occurred three times in one week, August 14th and August 21st and 22nd. The gap between 10-year and 2-year reference treasury bills closed at a positive 1.8 basis points on August 21. The market closed with the yield at 10 years at 1.587% and the rate at 2 years at 1.569%.
On August 22, although the reversal was brief, she shook the market for a moment. At 16:05 ET, the yield curve was reversed, with the 2-year Treasury yield rising to 1.614%, higher than the one in the decade at 1.611%.
An impact of the first inversion could be observed on bank stocks as it is difficult to profit from lending money in this environment. BAC shares of Bank of America Corporation, JPMorgan Chase & Co. JPM and Citigroup Inc. C fell 4.6%, 4.2% and 5.3%, respectively, on August 14th.
Global economic slowdown
Both the United States and China presented data that signal a global economic slowdown. In the United States, GDP growth in the second quarter of 2019 increased by 2.1%, compared to 4.1% a year ago. While GDP growth in China in the second quarter slowed down to 6.2% from 6.4% in the first quarter of the year. This is the lowest growth rate of the last three decades.
On August 14, official data from the Chinese authorities showed that growth in industrial output slowed to 4.8% in July, the lowest growth in 17 years. On the other side of the globe, euro area GDP grew 0.2% from one quarter to the next, marking a sharp slowdown compared to 0.4% growth recorded in the first quarter of this year.
Moreover, the same day, Germany recorded a drop in its GDP of 0.1% from one quarter to the next, bringing the annual growth rate to 0.4% in the second quarter, compared to 0.9% in the first quarter. Germany narrowly avoided a recession last year, but now seems to be overshadowed by a negative impression of GDP.
As the Fed defines the rate cut as a "mid-cycle adjustment" and not as a "pre-set price" for further easing, investors seem worried. In addition, the trade war that prevails between the United States and China is further slowing the economy. This forces investors to rush to safe havens.
Enter these 5 actions – Be safe
The current signs of economic slowdown and a reversal of the yield curve make the market very volatile. Utilities and consumer staples are a safe option as they enjoy steady demand even in times of recession and will also be stable in a bear market.
We restricted our search by the number of utilities and consumer goods businesses. These five stocks also have Zacks # 2 (buy) ranking. You can see You will find here the complete list of today's Zacks # 1 stocks.
Unitil Corporation UTL is a publicly traded utility company serving New Hampshire, Massachusetts and Maine in electricity and natural gas. Expected growth in Unilil's profits for the current year is 4%. The Zacks consensus estimate of current year profits has improved 0.9% over the past 60 days.
American Water Company AWR is a publicly traded utility conglomerate. It provides water service to customers in the north, coasts and southern California. The company also distributes electricity to customers in California's Big Bear Recreation Area. The expected growth rate of AWR's profits for the current year is 18.6%. The Zacks consensus estimate of current year revenues has improved 2.5% over the past 60 days.
Chesapeake Utilities Corporation CPK is a publicly traded utility company specializing in the distribution and transportation of natural gas, propane distribution and marketing. The expected growth in the company's profits for the current year is 12.7%. The Zacks consensus estimate of current year profits has improved 0.5% over the past 60 days.
Procter & Gamble Company PG is a publicly traded company that manufactures and sells a range of branded packaged consumer products. It focuses on beauty, grooming, health care, fabric care and home care, and baby care and family care.
Procter & Gamble's forecast earnings growth for the current year is 7.1%. The Zacks consensus estimate for current year profits has improved 1.9% over the past 60 days.
General Mills, Inc. SIG is a manufacturer and distributor of branded consumer foods sold in retail and publicly traded stores. Expected earnings growth for the current year is 4.7%. The Zacks consensus estimate for current year profits has improved 0.6% over the past 60 days.
The next Wall Street Amazon
Vice President Zacks, Kevin Matras, believes that this well-known title has just begun to climb to become one of the most important investments of all time. This is a unique opportunity for a generation to invest in pure engineering.
Click for more details >>
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