Experts: Investors Bracing for US to Plunge Back Into Recession

Monday, 04 Jun 2012 09:54 AM

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Stocks are plunging on weak economic indicators these days, especially on the dreary May jobs report that showed the economy picked up a net 69,000 jobs, which was much worse than expected.

While disappointing headlines often send stocks tanking, massive losses such as the Dow Jones Industrial Average's fall of 2.22 percent Friday in wake of the unemployment report may signal that darker clouds brewing on the horizon.

Meanwhile, the yield on the 10-year Treasury note has fallen to 1.46 percent, which shows investors are stashing their money in safe and liquid U.S. government debt despite poor returns, which reflects safe-haven trading. Yields on bonds move inversely from price.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

Markets, experts say, may be bracing for a possible U.S. recession, especially considering Europe is likely in one and China's growth continues cooling by more than expected, as evidenced by weak manufacturing and service-sector figures.

"Investors had been hoping the U.S. was a safe haven in all this," says Sam Stovall, chief equity strategist at Standard & Poor’s in New York, the Christian Science Monitor reports.

"They are reacting to a widening and accelerating risk of recession."

Other experts point out that rock-bottom yields in U.S. government debt markets reflect sentiment that investors aren't look for stellar returns — they're just looking for a place to park their money and be sure they'll get it back.

"By any historic measure the yields are not attractive but more importantly people have confidence they will get their money back," says Eric Stein, a portfolio manager at Eaton Vance Investment Managers in Boston, the Christian Science Monitor adds.

Other experts agree that the U.S. economy appears to be tipping into something worse than a mere soft patch.

"The negative employment data caps the recent deterioration in global economic data. From China to Europe to the U.S., all the data have shown real slowing," says John Kilduff, partner at Again Capital LLC in New York, according to Reuters.

Talk that the U.S. economy was insulated from problems in places like Europe is being replaced by calls for a more synchronized downward shift.

"The global economy downshifted sharply in May, and judging by these data, the U.S. followed suit," says Michelle Girard, an economist at the Royal Bank of Scotland, Reuters adds.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.


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