The gloomy stock market notwithstanding, economic growth in the United States could be the best in years, says this week's cover story in Barron's. Will stocks reach new highs before the year is out?
"What Recession? GDP Set to Grow 3%" by Gene Epstein points out that there are two quite divergent outcomes for 2016. Either the U.S. economy has paused before continuing itd growth, or this pause signals the onset of a recession. Despite subscribing to the former view, Barron's does consider the bearish alternative, as well as admitting that there might be a plausible in-between scenario that splits the difference between recession and accelerating growth.
With regard to what is happening in China, Japan and Europe, one expert quoted in the article observes, "In the modern era, there is not a single recession that can be traced to foreign economic woes." Or put another way, "While a U.S. sneeze can give the rest of the world the proverbial flu, the reverse still does not happen."
Find out why the presidential election is a wildcard in predicting the outcome for the year. What effect are employment gains and the tight labor market having on consumer spending and capital investment? How much are loan defaults by the energy sector hurting U.S. banks, and has a home-price bubble begun to form again? Even if the bull market of the past few years has slowed, can stock prices still reach new highs?
And see why Barron's thinks the virtuous cycle should dominate this year.
The article also includes a graph that shows how a seemingly ambitious 3 percent gain in gross domestic product is actually the weakest expansion on record, and another that shows the historic relationship between so-called oil shocks and recessions.
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