The deep view of the markets does not warn of economic recession

US President Donald Trump is looking for a fundamental shift in government policy, in a step that the country has not seen for decades. The White House moves quickly to reduce spending, expanding customs lights, canceling organizational regulations and reformulating tax base. These changes raise many questions about its impact on the economy, business opportunities, housing market, inflation and stock markets. However, no one can accurately predict what will happen. But the best guess of what is going to happen lies in the collective vision of the markets, as independent decisions made by investors in sales and purchasing operations in the movements of shares and bond prices are manifested. Michael Moboosin, investment strategy and assistant professor at Columbia College of Business, simulate the concept of collective vision with its students every year by demanding that the number of jelly delicious beads be guessed in a pot. In the latest results he placed on the “X” platform (X), Moboosin explained that “individual guesses were on average 50% wrong, while the average error in collective guesses was between 0.1%.” In other words, “The group is more intelligent than the average individual in it.” You can imagine that financial markets are a professor of operating administration that wears glasses, and collects asset prices instead of the number of candy beads, with a difference that share prices and bonds reflect a large amount of information. Any price represents a window on a specific investment, but when combined prices are combined, it draws a more comprehensive image of the economy and the factors that affect it, including monetary policy, the level of commercial activity and government policy. Interest rate trends and bonds here are a quick look at the prices I follow and which you reveal the state of the economy at the moment. Start by monitoring the yield on US Treasury effects for ten years, as this indicator gives a general idea of ​​the economic mood. As the yield rises, it is usually an indication of the strength of the economy, and this may be accompanied by an increase in inflation rates, while its decline indicates an economic slowdown. Since mid -January, the return on Treasury bonds has dropped by 0.6 percentage points to 4.2%for ten years, a significant move during a short time, indicating that the economy may be in a slowdown. If so, the markets should also expect the Fed to support the economy to support the economy by reducing short -term interest rates, which is what is already happening. Treasury bonds for two years are closely related to the interest rate on federal funds, which is the rate of the bank loans for one night using the federal use to determine the short -term interest rates. This return is often indicative of the following central bank movements. Treasury effects yields remained near the federal interest rate for several months, which began in November, which was a clear indication that the federal would temporarily stop reducing interest rates. But since mid -February, the return has dropped by 0.4 percentage points to 3.9%, reflecting the market expectations that federal interest rates will at least lower again this year. This decline is another indication of the slowdown in the economy. The stability of credit differences The next element I monitor is credit differences, reflecting the difference in the yield between corporate bonds and US treasury effects with similar expiration date. Generally, investors demand higher returns when lending to companies compared to the US government. However, the amount of this difference depends on the confidence of investors in the ability of businesses to serve their debt, which is largely related to the power of the economy. In an unexpected step, credit differences have decreased, as the difference between the BBB bonds (BBB) ​​and the US Treasury effects reached only one percentage point, a level approaching the lowest historical levels. To make it clear, this difference increased to 4 percentage points during the corona pandemic, and then almost doubled during the financial crisis in 2008. Unlike the revenue of treasury bonds for ten years and two years, therefore, it does not appear that credit differences reflect any concerns among the market market. The shares have fallen on the contrary, the stock markets do not appear to be optimistic. Economic slowdowns negatively affect the growth of profits, and the stock market seems to be preparing to meet some challenges. The Wall Street analysts usually only talk about profits from time to time, but immediate changes in profit expectations can be detected by calculating implicit gains in stock prices and the average long -term profit multiplier. For example, the S&B 500 index has been circulated on average 18 times the future profits since 1990. If this long -term medium doubles were applied at the peak of the 6,144 points on February 19, it would mean implicit profits of $ 341 per share. This number was just higher than the average analysts’ estimates of the expected profits during the next three years, which amounted to $ 334 per share. But since then, the S&B 500 index has dropped to 5.572 points, which has led to a decline in future profits for three years to $ 310 per share, a 9%decline. This decline reflects the same warnings introduced by the Cabinet effects markets. Inflation expectations amid the slowdown in the economy and ultimately look at the expectations of inflation, as it is assumed that one of the positive aspects of the slowdown in the economy is the low inflation, a scenario that now has in mind the markets. The binding rate has dropped five years, which is the difference in the yield between nominal treasury bonds and being adjusted by inflation for the same period, slightly to 2.5 percentage points since mid -February, which means the markets expect inflation of 2.5% annually over the next five years. But the potential alternative is the inflation recession, which is a disturbing mix of slowdown and high inflation. This scenario cannot be excluded due to the lack of certainty around customs duties and their potential impact on prices. In general, the markets seem to indicate a moderate economic slowdown, which is in conflict with the fear of much of a deep stagnation or an imminent crisis. These are significantly studied signals in the political noise around the White House. The deep stagnation or crisis usually involves a mixture of sharp discounts in interest rates by the Federal Reserve, high cases of backwardness and a sharp decline in corporate profits. This is often preceded by an increase in treasury effects, the width of credit differences and a significant decline in the stock market. But the current situation does not reflect this scenario. Currently, a more flexible labor market, stable inflation and slightly low real estate property and less optimistic performance in the stock market should be expected. But keep in mind, whatever happens, the markets are likely to be the first to know.