Not sure about the U.S is going into a recession phase but data coming from different prospective making an impression on the investor's mind flashing sign of an economic slowdown brought on by slower growth across the world and the trade war impact. There is no doubt that the slower economic growth rate is weighing on central banks to lower borrowing rates at an unprecedented level and also maintaining the pressure on business sentiment.
let's have a look at all the factors which are indicating the fears of recession and global economic slowdown. If one wants to list down the first indicator will be the bond market. As all know that long terms bond carry a higher interest rate than the short term bond in a healthy market. But the yield on the benchmarks 10 years note has fallen below 2 years yield more time since August 14. It is historically a trusty signal for an upcoming recession. According to Credit Suisse, a recession usually occurs about 22 months after an inversion on average.
Next comes to the Gross domestic product in short GDP which is already in the slowing process. The commerce department said in its second reading of GDP that the economy expanded 2% which missed the analyst estimates 2.1% in the second quarter. It is the lowest growth rate since the fourth quarter of 2018 and experts are expecting a further dip in GDP.
Many companies' earnings are also the indicator that is flashing red. Many earnings have shown or are showing estimates that have come down or coming down drastically low this year. If we talk about the S&P 500, we will see that according to Factset, the analyst estimated earning growth for this index would be 7.6% for this year but the number is now around 2.3% after the first half of this year. The strategist of Goldman Sachs and Citigroup reduced 2019 and 2020 estimates for this index which is indicating a sluggish economic condition of recent scenario. If you go for any individual stocks and study you might found they have already lowered their estimates especially those individual stocks which are more affected by global growth and rates. Energy, technology, financial and industrial are the most affected sectors and have been coming down in the last few weeks.
If we check sector-specific downturn or estimates, we can see energy down 21.8%, technology down 7.4% from their previous earnings. In July, the financial sector was up 6.8% and after this is up 4.3% compared to previous earnings. The same thing also applies to the industrial sector which is up only 2% for this quarter compared to 6% from previous earnings. Estimates in the retail sector also another source of worry which lowers their estimates 0.2% significantly. Big companies like Apple, Amazon are also in the list due to tariff and trade war have become the major obsession for corporate America.
Current economic situation & business sentiment or investment completely lying on this issue. Such as U.S manufacturing growth which already slowed to the lowest level in August. According to the data, new orders received by the manufacturer dropped and the PMI was 49.9 in August down from 50.4 in July which is always an indicator for investors to get a view that where the economy is headed. FED member also showed their concern about this weak sector of the economy. So now its time to wait what will happen next. According to the commerce department, quarterly GDP report gross private domestic investment also the worst since the fourth quarter of 2015, tumbled 5.5% this year.
In the commodity, market copper is down over 13% in the last half-year. Gold now become a safe haven like a government bond in times of economic uncertainty.