Recession will be a 'slow motion accident': Strategist

U.S. retail sales rose by the most in four months in July. It was a reassuring sign for investors on edge about a looming recession.

“This is a welcome affirmation that the economy is continuing to expand despite the various headwinds and policy decisions that are holding it back,” Tim Quinlan, senior economist at Wells Fargo, tells Yahoo Finance.

More good news about the health of the economy came from Walmart. The nation’s largest retailer posted strong second quarter sales and boosted its full-year outlook — even in the face of an escalating trade war with China. Shares of Walmart (WMT) rallied the most in a year on the news.

Exterior of Walmart in San Jose, Calif., Wednesday, Aug. 13, 2008. Wal-Mart Stores said Thursday, profit rose 17 percent in the second quarter and is raising its full-year forecast as the world's largest retailer benefits from low prices that are attracting shoppers in a challenging economy, and its moves to cut costs.  (AP Photo/Paul Sakuma)
Exterior of Walmart in San Jose, Calif. (AP Photo/Paul Sakuma)

Strong consumer spending and a healthy labor market have been the saving grace for the U.S. economy, which is trying to avoid getting wrapped up in a global slowdown that’s already taken hold in China and Germany.

“If we get a recession, it will be a slow motion accident, so there are opportunities to stop it and really change course,” Kristina Hooper, chief market strategist at Invesco tells Yahoo Finance’s “The First Trade.” “A lot of it has to do of course with trade policy, but it is not a foregone conclusion that a recession is occurring.”

Concerns about a pending recession reached a fever-pitch Monday, when the Dow suffered its largest drop of the year after the yield on the 10-year Treasury bond fell below that of the 2-year Treasury bond for the first time since 2007. That phenomenon, known as a yield curve inversion, has preceded each of the past seven recessions.

Mild 2020 recession

While an inverted yield curve can be unsettling, Quinlan points out that it doesn’t always precede a recession.

Paul Schatz, chief investment officer at Heritage Capital, says 2020 has “a bullseye on its back” for a mild recession, similar to the one we experienced in 2001.

“Most people barely felt that recession, and by the time it hit the headlines in the New York Times, it was over. That’s the kind of recession I think we see.”

Schatz says he wouldn’t be surprised if the U.S. economy falls into a mild recession in Q2 or Q3 of 2020.

He says a deep and protracted recession is unlikely, especially because of strength in U.S banks.

“Banks are sitting on 2 plus billion dollars of capital,” Schatz says. “You can’t have a serious recession if the banks are in rock solid shape. It’s impossible.”

Alexis Christoforous is co-host of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.

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