What The Market Does Will Tell Us What’s Coming For The Economy


The United States market is having an incredibly rough time. Even after Wednesday’s massive gains, the Dow Jones Industrial Average is still down well over 10% from its high this year and the S&P 500 and NASDAQ aren’t looking too great themselves. However, the worst may still be on its way; and investors know it. Economic conditions around the world are weakening, and the United States economy may be in the same boat. What we see from the market throughout Thursday and Friday could signal a United States economic disaster.

Dow Jones Industrial Average, by WSJ

Today, we’ll talk about the signs that the US economy may be headed for a recession of its own, how to use the market as a signal, and what I’m expecting to see moving forward.

Signs That The United States Is Headed For An Economic Disaster

  • Worldwide Economic Turmoil – The first thing that we have to keep in mind here is that the global economy is a living, breathing being; and a very social one at that. As a matter of fact, it’s so social that it relies on interaction with other economies to survive. Other economies like China, Europe, and more. However, not all economies around the world are doing so well. We’ve all heard about the Chinese market crash and European economic struggles, but most people don’t know that there are 24 nations that are currently facing a major debt crisis; just like the one we heard about so much in Greece. When economies around the world are not doing well, they place extra strain on those that are.
  • Federal Reserve Rate Hike Less Likely – As many experts, including myself predicted, the September interest rate hike from the Federal Reserve isn’t so likely anymore. As a matter of fact, William Dudley, the President of the New York Federal Reserve weighed in on Wednesday stating that China’s economic slowdown mixed with global stock market concerns are likely to put a damper on any plans to increase interest rates any time soon. Since the Federal Reserve is only likely to increase rates under positive economic conditions, this is a bad sign for the US economy.
  • Oil Continues To Fall – While markets picked up in a big way on Wednesday, one asset that didn’t get a boost was oil. Not only is oil the driver for the all-important energy sector, it’s also a very clear indicator for what consumers think of the economy. When demand for oil is high, consumers are confident in growth. However, that’s not the case. As a matter of fact, a Wall Street Post article on Wednesday pointed out the fact that even with low oil prices, demand for gasoline is declining in the United States; showing that consumers have concerns.

What The Markets Will Tell Us About The Economy

We’ve seen corrections in the past. As a matter of fact, the last time the Dow, S&P and NASDAQ all fell more than 10% from highs was only four years ago; and economic devastation wasn’t a concern. As a result, after declines, we saw the market pick up and continue the run with the bulls. However, that may not be the case this time. If investors are indeed concerned about the state of the US economy, they will generally pull out more money over time; placing it into safe havens. In the end, this will cause an even bigger hit to the US resulting in economic fears becoming a self-fulfilling prophecy. With that said, if we start to see more declines tomorrow that last through Friday, it could prove to be a sign that an economic crisis is headed for the United States, and it’s happening fast!

Final Thoughts

Market corrections happen, and believe it or not, they happen more often than one may think. However, market corrections in the midst of global economic struggles can prove to be more than a correction; they can lead to that “R” word that no one likes to say… Recession. The bottom line is that there are already plenty of signs pointing to major economic issues in the United States; and if the market remains unsteady, it could be the straw that broke the camel’s back so to speak. So, keep a close eye on the markets over the next two days. The movements you see will be saying quite a bit!