IMF Predicts UK Recession On No-Deal Brexit

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Posted: Apr 10, 2019 8:55 AM
IMF Predicts UK Recession On No-Deal Brexit

Source: AP Photo/Frank Augstein

In yesterday’s session, there were only 737 winners. It was a serendipitous number given that there was a lack of new orders for Boeing’s (BA) 737 Max, coupled with Goldman Sachs (GS) lowering its target and pushing the shares down more than $5.00. Caterpillar (CAT) was the worst performer in the Dow after it was on the receiving end of a “sell” rating. 

To find I'm a number one, head of the list,

Cream of the crop at the top of the heap.

-New York, New York, Frank Sinatra

From a macro point of view, the Caterpillar development was probably more problematic. As a global economic proxy, the downgrade reinforces the notion the economic slowdown gets worse before it gets better. This is the warning from the International Monetary Fund (IMF), which lowered its economic outlook for the third time in six months.

To a certain degree, they should be embarrassed by the inability to get it right. It will be missed on most that take the bait, as there is a greater sense of urgency for globally coordinated measures to stoke economies. The problem is that the stimulus bag of tricks is empty. Many economies will have to make do with easy money policies already in place – they should focus on growth rather than the status quo.  The good news is that the United States remains at the top of the heap

IMF Global GDP Forecast

2019

2020

United States

2.3%

1.9%

Germany

0.8%

1.4%

France

1.3%

1.4%

Italy

0.1%

0.9%

Spain

2.1%

1.9%

United Kingdom

1.2%

1.4%

Canada

1.5%

1.9%

China

6.3%

6.1%

World

3.3%

3.6%

The IMF is offering the same warnings about trade scrimmages and offering a dire prediction of a two-year UK recession on a no-deal Brexit.

We got it. The ultimate symbol of the global elite doesn’t like it when the boat is rocked; perhaps it’s their power being capsized that they fear the most. 

The Markets

On Monday, I wrote a number of reasons for the market potentially hitting a pothole this week, and while all remain valid, the biggest issue for investors is how far major indices have come in such a short period of time. 

It’s been a remarkable year that has already made certain positive assumptions.

  • First-quarter earnings will suck, but it will get much better into the remainder of the year
  • First quarter Gross Domestic Product (GDP) will dip sequentially but will get much better into the remainder of the year as well
  • There will be a US-China trade deal
  • The United States-Mexico-Canada Agreement (USMCA) will be ratified by Congress

Market Performance

April 9

30-days

2019

S&P 500

-0.6%

+3.4%

+14.8%

Dow Jones Industrial Average

-0.7%

+2.0%

+12.1%

NASDAQ Composite

-0.6%

+4.7%

+19.2%

Russell 2000

-1.3%

+0.7%

+15.7%

Because those things are assumed, it doesn’t mean they are completely baked into the market. On the contrary, as they come to fruition, look for the market to gain momentum. That being said, if there is no deal between the United States and China, it will send the market reeling as investors brace for an uptick in the trade war. 

Meanwhile, against their own interest and core voters, we are hearing Nancy Pelosi is considering taking the USMCA hostage. 

Beyond all the political intrigue, there is natural anxiety that comes with markets approaching major milestones, such as all-time highs. Like any investment instrument trying to break out through a double top, it has to occur in a short period of time or it will trigger a pullback, which wouldn’t be the worst thing in the world right now.

Stay focused on how the underlying fundamentals will continue to improve over the course of the year. That’s the foundation of your investment thesis.

Portfolio Approach

Communication Services

1

Consumer Discretionary

4

Consumer Staples

1

Energy

1

Financials

1

Healthcare

2

Industrial

4

Materials

3

Real Estate

0

Technology

2

Utilities

0

Cash

1