JEFF KLEINTOP: Some investors are asking, âHas a global recession already begun?â Weâve seen a big plunge in oil prices in the last couple of months, and two major countries saw their economies shrink in the third quarter, and that may be causing the markets to price in the start of a global recession. Now, while we may be in the midst of a global economic slowdown and thereâs a heightened risk of a recession in the next 6 to 18 months, we think in the near term the global economy may actually bounce back--and that could provide some relief for the stock market. So let me talk about some of these ominous signs that I talked about there.
The plunge in oil prices, for example, well, it was down nearly 30% from its peak earlier this year. You know, when commodity prices fall, itâs often seen as a sign of a weakness in production and a slowing economy. But whatâs interesting is those declines arenât echoed in other economically-sensitive commodities, like copper, or many others. And that may mean that the drop in oil prices may mean itâs just tied to oil, and not really a sign of a global economic slowdown.
Now, what about those other global weak spots that I mentioned? Itâs true, Japan and Germany did see negative GDP growth in the third quarter, but those temporary drags on their growth--auto-production in Germany and a string of natural disasters in Japan--have ended, and thatâs led growth to rebound here in the fourth quarter.
So it may be that some of that recession scare may begin to fade here in the near-term as economic growth rebounds a little bit, and that may offer some relief to stocks as we close-out the year.
