Morgan Stanley Index For Economic Turning Points Sees Largest 1-Month Decline Ever, Lowest Since Financial Crisis

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Written by Dana Sanchez
economic turning points
Manufacturing activity in May grew at the slowest rate in two years, raising fears of an economic turning point. UAW assemblywoman Kelly Coman gives a final look at a 2018 Ford F-150 truck on the assembly line at Ford Rouge plant, Sept. 27, 2018, in Dearborn, Mich. (AP Photo/Carlos Osorio)

Morgan Stanley’s Business Conditions Index, which captures turning points in the economy, had its largest one-month decline on record, falling to the lowest level since December 2008 during the financial crisis, the firm said.

“The decline shows a sharp deterioration in sentiment this month that was broad-based across sectors,” economist Ellen Zentner said in a note to clients on Thursday, according to CNBC.

Contributing to the “June gloom” are scenes of protest in Hong Kong, a worse-than-expected U.S. jobs report in May, a spike in jobless claims last week, and manufacturing activity in May that grew at the slowest rate in two years.

Will June mark one of the economic turning points?

Some investors worry the economy could fall into a recession. Concerns about a U.S.-China trade deal affected stock markets in May, which boosted stocks this month because traders are hoping the Fed will cut interest rates.

A recession shock could wipe 30 percent off U.S. stocks, forecasting firm Oxford Economics warned in a worst-case scenario, according to MarketWatch.

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Episode 41: The Bull Market And Why They Hate Ocasio-Cortez And Gabbard “Jamarlin Martin discusses the nasty stock market decline and why there’s trouble ahead for the global economy. He also discusses Alexandria Ocasio-Cortez’s proposal for a 70-percent tax rate on the wealthiest Americans, and why the military industrial complex and regime-change hawks hate 2020 candidate Tulsi Gabbard.”

However, while Oxford Economics admits the global economy is looking slightly weaker, “we should not blindly succumb to the prevailing recession bias,” analysts said in a June 13 report:

“The lingering and more pronounced yield curve inversion along with cooler domestic activity have pushed our model-driven recession probabilities above critical thresholds reached ahead each of the last seven recessions … While the economy is undoubtedly cooling as fiscal stimulus dissipates and trade tensions linger, momentum remains positive, service-sector activity appears resilient, confidence is elevated and the labor market remains strong.” — Oxford Economics.

In a more optimistic scenario, Oxford Economics predicts more stimulus from China, lowered trade tensions with supportive policy from central banks and improved investor sentiment globally. This could mean a boost “in the high single-digit percentage ballpark by the first quarter of 2020,” MarketWatch reported.

Then again, maybe not. Fallout from a trade-war means the U.S. could impose a 25-percent tariff on Chinese and Mexican imports, a 10-percent tariff on European goods and 25 percent on non-North American cars. U.S. stocks could down 15 percent by late 2019, the firm says.