Magazine article American Banker

Stocks, Bonds Signal Growth, Not a Slump

Magazine article American Banker

Stocks, Bonds Signal Growth, Not a Slump

Article excerpt

If the stock and bond markets are dependable guides, the nation's economy is not even close to a recession.

The Standard & Poor's 500 stock index has slipped lower in only one month during the past 12, points out Anthony Chan, chief economist at Banc One Investment Advisors.

"Since the mid-1950s," he said, "not one recession has ensued when the S&P index has declined during only one of the preceding 12 months," he said.

Meanwhile, the bond market's typical early warning of recession is a rise in the 10-year Treasury rate in nine of the 12 months preceding the end of a business expansion.

Just the opposite has recently occurred, Mr. Chan noted. The 10-year Treasury rate has fallen in nine of the last 12 months.

Indeed, the robustness of the markets is itself a reason the talk of recession has receded.

"We are still benefiting from the massive financial market rallies of 1995," said Sung Won Sohn, chief economist at Norwest Corp.

"We estimate that the stock market alone increased the overall financial net wealth in our pockets by $2.5 trillion in 1995," he said. "And so far this year, it has probably gone up by another half trillion."

"We further estimate that every time overall net worth goes up by $1 in financial markets, then consumer spending goes up by four cents over three months," he said. "When you multiply $3 trillion by 4%, you see that we are talking about something pretty significant - $120 billion over three months."

But he and others quickly add that no boom is on the horizon either. …

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