QTR Fringe Finance: 3 Reasons A “Nasty Recession” Will Soon Arrive

While markets sold off in the first part of August, much of the drop was reversed in the second half. Traders have started to adopt a “bad news is good news” mentality. That’s because a slowing job market could mean the potential for interest rates to drop sooner rather than later.

If so, that could help take stocks to new all-time highs, even if there’s a brief drop before that happens.

While that sounds good on paper, it’s possible that things could go the other way. Several reasons suggest why. First, the economy of the past 15 years has been largely created at a time of zero percent interest rates.

Those who claim we’re in an “everything bubble” point to this trend. The low cost of borrowing made many projects look viable that aren’t at 5 percent interest rates.

If we are in a bubble, the unwind will come faster than the buildup. And the bubble popping could lead to prolonged side effects. After all, if we are in an everything bubble, it was started in the first place by the collapse of the housing market.

The coming months will also see the end of excess pandemic savings being worked through. And student loan payments are set to resume, which could further dampen consumer demand.

In turn, that suggests not only a lower move in the stock market. And a longer path for markets to take before making new all-time highs.

To read the full rationale behind a potential recession in the months ahead, click here.