I want to share with you a reflection on the dominant narrative that is being sold to us about the U.S. economy and the supposed imminent recession.
We are bombarded with the idea that Trump's tariff war is sinking the economy, that tax cuts will reduce public spending, and that the market has already priced in the worst. But how true is this version of events?
First, no one really knows the outcome of the tariff war. It is a negotiation process, not a disaster waiting to happen. Look at what happened with Canada: both countries raised tariffs, but then backed down.
Second, are there really signs of recession? If the U.S. were on the brink of a crisis, high-yield bonds would have already spiked their risk premiums, but that hasn't happened. Moreover, the labor market remains strong, private consumption is stable, and spending per hour worked is growing.
Third, if the U.S. economy were in free fall, why have the stock markets in China, Europe, Mexico, and even Canada risen? That does not fit the narrative of an imminent global crisis.
My conclusion is that we have been hammered with the idea of a recession without the data really supporting it. Yes, the S&P 500 has fallen by 10%, which historically corresponds to a 50% probability of recession, but if we analyze the actual data, the probability is much lower, perhaps between 15% and 25%.
The worst is already priced into the market, and all that is left is to bounce back. However, a clear bottom has not yet formed. I leave you with this reflection for each of you to draw your own conclusions.
We are bombarded with the idea that Trump's tariff war is sinking the economy, that tax cuts will reduce public spending, and that the market has already priced in the worst. But how true is this version of events?
First, no one really knows the outcome of the tariff war. It is a negotiation process, not a disaster waiting to happen. Look at what happened with Canada: both countries raised tariffs, but then backed down.
Second, are there really signs of recession? If the U.S. were on the brink of a crisis, high-yield bonds would have already spiked their risk premiums, but that hasn't happened. Moreover, the labor market remains strong, private consumption is stable, and spending per hour worked is growing.
Third, if the U.S. economy were in free fall, why have the stock markets in China, Europe, Mexico, and even Canada risen? That does not fit the narrative of an imminent global crisis.
My conclusion is that we have been hammered with the idea of a recession without the data really supporting it. Yes, the S&P 500 has fallen by 10%, which historically corresponds to a 50% probability of recession, but if we analyze the actual data, the probability is much lower, perhaps between 15% and 25%.
The worst is already priced into the market, and all that is left is to bounce back. However, a clear bottom has not yet formed. I leave you with this reflection for each of you to draw your own conclusions.
