Recession Risk at Last?

We are going on recession-watch, because of incipient weakness in our two most important leading indicators – declining S&P 500 forward earnings, and widening high-yield credit spreads. Like the last time in 2015-16, prime causes are China and oil prices. Unlike past pre-recession periods, this time there is no single sector responsible for the forward earnings decline. The China-facing Info Tech sector has been the hardest hit. High-yield spreads are dominated by the Energy sector, hit by the sharp decline since Khashoggi’s death. This is not a full recession call yet, but we are at Condition Red. We hope to avoid recession, and continue to think the present equity correction is only that. Our hopes are contingent on our expectations for a "framework" for resolution to the China trade war from the Trump-Xi summit at month-end, and production cuts from OPEC.