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Anonymous

07 Jun 2019

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General Investing

What are signs of a bearish economy and how likely will the economy tank?

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Signs of a bearish economy include - high volatility in the VIX index, an inverse yield curve for government bonds, and cuts in fed interest rates - which show that there is a slack in the economy and there is a need to cut interest rates to boost consumption and investments, as inflation is a non- issue. All these indicate a high likelihood of economy slowdown, and possible recession - a bearish market may form when enough bad investor sentiments regarding the economy tip the economy into a huge selloff that may last for many months.

However, it must be said that it is rather difficult to exactly predict when or how this may happen - though many professional analysts try to do so in any case. It is said that the Business Cycle goes from peak to trough in cycles of 10 years, and the previous one has happened in 2008 - which although there was a scare in december 2018 due to the trade war, there has not been any huge warning signs just yet other than the slight inverse yield curve that occured in december.

Active investors definitely would be watching the market closely at this stage for the outcome of the trade war talks. Passive investors would basically just not care, as their intention is to hold for long periods of time. So it entirely depends on the investment strategy you have that will dictate your next move.

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