Is it time to sell stocks before the next recession? This might seem to be a strange question considering that the US stock market has had a great year. But, it appears as though simply adding a consumption tax in Japan was enough to send the country into recession. US manufacturing fell back a step this last month. Oil stocks took a hit due to low energy prices. China is seeing its usually spectacular growth level off and has a threatening real estate bubble to boot. And, the German Economy is sluggish according the Deutsche Bundesbank as reported in online Press TV.
“The further deterioration in economic expectations and the stagnation of new orders point to a rather sluggish course of economic development in Germany until at least the end of 2014,” the Bundesbank said.
During the third quarter of the year, Germany’s gross domestic product (GDP) grew by 0.1 percent, after contracting by 0.1 percent in the preceding three months.
The point of all this being that there is no guarantee that the global or US economies will continue to improve without at least a substantial correction. Thus it might just be wise to sell stocks before the next recession, hold on to cash, and buy again on the next upswing.
Things seems to be going so well in Japan as stimulus measures brought down the cost of the Yen and increased Japanese exports. Then the government instituted a consumption tax and things went south.
Japan Slips into Recession notes an article in Reuters.
Oil prices fell and global equity markets were mixed on Monday after news that Japan unexpectedly slipped into recession in the third quarter renewed concerns about the world economy, but merger activity and comment about European stimulus capped declines.
Japan’s economy shrank an annualized 1.6 percent, after a 7.3 percent drop in the second quarter, when a sales tax hike hit consumer spending. Analysts polled by Reuters had expected 2.1 percent growth in the third quarter, but consumption and exports remained weak, saddling companies with big inventories.
It appears that things were not as stable as appeared with the Japanese economy and consumers reacted to a small sales tax by staying home from the stores. If you are going to sell stocks before the next recession, Japanese stocks as well as German stocks may be at the top of your list.
How about US Stocks?
According to JPMorgan analysts the US stock market may be in for a plunge. An article in Reuters notes that JPMorgan is underweight on US stocks in comparison to Europe.
JPMorgan on Monday downgraded its view of the U.S. stock market, reversing its overweight call to underweight as valuations relative to Europe had “turned outright expensive.”The firm upgraded the euro zone to overweight from underweight, believing the region “is due a period of outperformance vs the U.S.,” with European banks primed to support the region.
In part this analysis simply says that there may be better deals in European stock in the coming year. But it is also a caution as the US economy has had a nice run of economic expansion and stock increases coming out of the recession. And, nothing lasts forever. Our article, When Are Stocks Too Expensive, made the same point.