Is a global recession led by a US stock market crash in the offing?

Up and down.
Up and down.
Image: Reuters/Danish Siddiqui
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Something seems about to break in the American markets. Sure, yesterday’s US Labor Department jobs report painted a rosy picture: 200,000 jobs were created last month, unemployment is at 4.1% and, in the big surprise of the day, hourly earnings finally grew, by 2.9% over the prior January. While we’re on good news, the Atlanta Federal Reserve thinks US GDP is growing at 5.4%.

Yet, as Allison Schrager explains, Americans are saving at their lowest rate since 2007. And when Americans reduce their rate of savings, it usually means there’s a recession in the offing. “The economy may be booming now,” she writes, “but there are plenty of reasons to be skeptical it will last. Productivity numbers don’t justify the headline growth figures. Many people think the stock market is overvalued and due for a correction.”

“It has been eight and a half years since the last recession,” Schrager continues, “and the natural oscillation of the business cycle suggests we may be due for another one soon.”

Indeed, yesterday the stock market had its worst day in two years. As Dave Edwards and Helen Edwards wrote earlier this week, “Anyone looking at any of the standard models will tell you that the US stock market is overvalued.”

They go on to write that there may yet be a “melt-up” in the stock market—a rise in prices that makes these good times feel even more euphoric, for a little while longer. After that though, it’s up to human psychology, bears versus bulls, central bank interest rates, liquidity, debt, and all the other usual suspects, to determine if the market ends up in a crash, and the US ends up in a recession. A recession that will be hard for many ordinary people to weather, given that wages have only just begun to rise, and savings rates have dropped.

And recessions, like stock market panics and the flu, have a nasty tendency to spread across borders, countries, and continents with ease.

This was published in the weekend edition of the Quartz Daily Brief, our news summary that’s tailored for morning delivery in Asia, Europe and Africa, or the Americas. Sign up for it here.