On a four-quarter trailing basis, real GDP growth is now +1.56% at an annual rate after a +1.46% pace in Q3 and +1.63% in Q2. We note that in the post-WWII experience, whenever we see three quarters of growth this low (average of 1.55%), the economy is either heading into recession, already in a recession, or just coming out of recession. Since we know that the data do not suggest that the economy is currently in recession, and since we know that the last recession ended nearly three years ago, then either a recession lies ahead at some point sooner than many currently think or we are going to witness something that hasn’t happened before in the context of modern history...
But whether or not a contraction can be avoided — Lord knows, this is far from the call of the consensus — the concept of economic fragility, vulnerability and susceptibility to even minor exogenous shocks cannot be ignored. To think we are even discussing this with three years of zero percent policy rates and three years of $1 trillion-plus fiscal deficits is incredible. This is likely one reason why multiple expansion is going to be quite limited as it pertains to price appreciation in the major equity indices going forward.
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