Tags: recession | stocks | GDP | Fed

Josh Brown: We're Probably Already in Recession

By    |   Tuesday, 01 July 2014 01:14 PM

The kind of negative GDP number that the U.S. posted for the first quarter has signaled the start of a recession in every modern instance, according to Josh Brown of the Reformed Broker.

But there may be a silver lining to follow, he says.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks


Brown said J. Lyons Fund Management compiled data from the 25 worst quarterly U.S. GDP outcomes in modern history. At the top was the 10.37 percentage GDP shrinkage in the first quarter of 1958, followed by the 8.61 percentage drop in the fourth quarter of 2008, and the 8.11 percent drop in the second quarter of 1980.

In terms of the worst 25 GDP results, this year’s 2.91 percent first-quarter fall comes in at No. 17, according to the J. Lyons numbers.

However, Brown said J. Lyons looked in vain for an instance in which any of the worst 25 GDP contractions did not lead to a recession.

“It turns out there wasn’t a single example in which the U.S. economy had a nasty quarterly GDP print and then escaped the dreaded ‘R’ word during the entire history of the post-WWII period,” he said.

Brown found the news discouraging until he received a subsequent tweet from Marginal Idea that showed all is not lost for investors when one of the worst quarterly GDP outcomes occurs.

He said that despite the awful data from J. Lyons, Marginal Idea showed “an even more important statistic is worth considering: the fact that the S&P 500 trades higher 79 percent of the time one year after these horrendously recessionary GDP prints.

“Even juicier is the fact that the average stock market gain in these years turns out to have been roughly 16 percent, far above the average return of all years, even those in which economic data is robust,” Brown wrote.

In the short term, however, CNN Money reported there may be four signs the stock market is overheating at the moment.

“The markets are in a state of ecstasy, but investors may be underestimating lurking danger,” CNN said.

CNN said the four signs are Wall Street’s “addiction to Fed stimulus,” expensive equity valuations, the fact the markets are outperforming actual growth, and the fact some corporate leaders are shedding their earlier optimism about the economy.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks



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The kind of negative GDP number that the U.S. posted for the first quarter has signaled the start of a recession in every modern instance, according to Josh Brown of the Reformed Broker.
recession, stocks, GDP, Fed
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2014-14-01
Tuesday, 01 July 2014 01:14 PM
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