Bond market sending message of a real fear of the economy slowing down: Peter Cardillo, Spartan Capital

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Bond market sending message of a real fear of the economy slowing down: Peter Cardillo, Spartan Capital

Earnings are expected to be lower but perhaps in the second and third quarter, we had a real slowdown in earnings, Peter Cardillo, Chief Market Economist, Spartan Capital Securities, tells ET Now.

Edited excerpts:

The first trading day of 2019 did not play out too well for the European markets or the Wall Street. Volatility seems to be a dominant factor even in 2019!

We are going to have volatility going forward for a bit longer. The fear factors of trade war are continuing to increase and on the first trading day in New York, we saw swings. The gyrations continue to increase and the reason for that is because the market is still very much unsettled. The bond market continues to send the message to the markets that there is a real fear of the economy slowing down.

Obviously, we got some negative news out of China and going forward, we are probably going to see the States continue to weaken a bit. I am not quite sure whether we could be headed for a recession any time soon but if the trade war is not settled within the next two or three months, there is a near certain possibility that we are looking at recession in 2020 and that is what the bond market is basically flashing.

So what could we do right to get the growth fears stabilised? One of the factors would be that there is a resolution on the trade front but what other things could go right for the markets to stabilise and the volatility to reduce?

The most important thing would be if we get a trade agreement between the United States and China. If that happens, then the economy will not be pressured towards recession and then we could continue to grow somewhere between 2.5% and 3% and obviously you would have a reversal in the bond market as well.

It is all predicated on the trade talks and the president of United States today in his press conference basically said that the trade war has basically been responsible for the market selloff in December and that the prospects of some sort of a trade deal is probably looking better now than before. That could be the key. Hopefully, we will get some sort of an agreement and that should reverse psychology and you could see a good rally develop during the course of the year.

If you look at Wall Street, the stocks have been correcting a fair bit. Of course, there are massive economic concerns in the US. PMI data concerns in China yesterday, impacted the market sentiment in a big way. How real are these growth concerns? 

Concerns are reflecting in investors’ confidence which has lost a great amount of percentage of points over the past quarter. Earnings are expected to be lower but perhaps in the second and third quarter, we had a real slowdown in earnings. That is another concern with some corporations already giving indications of softness. In fact, Apple came out and said that sales in China were very weak and as a result of that the stock was being pressured in the aftermarkets and obviously we are going toto feel that pinch on Apple.

But do you see other companies also following suit now that Apple has cut its revenue guidance for the first time in two decades, wilting under pressure from trade war? 

I think there will be more companies. Obviously the trade war has increased the prices for many companies and they will be pressured and they will show up during the earning season.

Source: https://economictimes.indiatimes.com/markets/expert-view/bond-market-sending-message-of-a-real-fear-of-the-economy-slowing-down-peter-cardillo-spartan-capital/articleshow/67359770.cms