Have We Suffered Enough?

We think we’re already in the first-ever recession caused by low oil prices, but evidentiary data are mixed. Q4 2015 GDP was revised upward this morning, but the revision was due entirely to inventory growth to record levels in this cycle, which implies slower growth in coming quarters as it gets worked off. January’s labor data was mixed. Housing activity was week. But yesterday’s strong cap goods orders point the other way. There are microgreens pointing this recession’s end. We are encouraged by the 2016 rally in non-energy commodities, and now an incipient double-bottom in oil. China has stabilized its currency crisis, and the Fed is sidelined. Corporate spreads are still extreme, but gold keeps rallying, indicating no shortage of liquidity. After a post-crisis high equity risk premium two weeks ago, stocks have already had a bear market similar to the average in recessions. The major risk is that the double-bottom in oil doesn’t hold. The black swan remains the increasingly likely nomination of Donald Trump.