The Shortest Recession Ever Is Over…15 Months Ago | Daily Market Update

Tuesday, July 20, 2021

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The shortest recession ever is over…15 months ago

The National Bureau of Economic Research (NBER) announced yesterday that the economy bottomed in April 2020, making the COVID-19 recession the shortest on record and the new expansion over a year old.

  • NBER doesn’t change recession calls once made and awaiting strong confirmation is perfectly normal—calling the recession 15 months after it ended is in line with the historical delay.
  • The average post-World War II expansion has averaged more than five years and the last four expansions more than eight years. The current expansion is still young.
  • With the Federal Reserve currently not expecting to even start hiking rates until 2023, plenty of fiscal and monetary stimulus still in the system, and a rapidly recovering job market, we don’t see a recession immediately on the horizon, which is usually good news for stocks.
  • For more on NBER’s call and what it means for markets and the economy, see our LPL Research blog, available by 12pm ET.

Daily Insights

US equities attempt to stage a rebound today after yesterday’s market selloff

  • Yesterday’s decline was the worst for the Dow Jones Industrials since October as Delta COVID-19 case increases as well as inflation concern investors.
  • European equities are higher through midday trading as the European Central Bank (ECB) lending survey shows an increase in loan demand.
  • Asian equities finished lower as Taiwan export orders increased more than expected as the outlook remains quite strong for high-end technology.

Don’t look for just one explanation for the strong decline in Treasury yields

The 10-year Treasury yield plummeted 0.12 percentage points yesterday to 1.18%, extending its decline since the end of March.

  • A number of factors have come together to push Treasury yields lower since the end of March: outsized inflation expectations coming down; short covering from crowded bets on higher rates; foreign buying; the drawdown of the Treasury General Account Balance; and rising economic concerns about the impact of the Delta variant have all contributed, to name a few.
  • The 10-year yield had likely risen too far too fast and having rates correct is no surprise, even if the pullback has been stronger than expected.
  • Growth and inflation expectations, as well as shifting supply/demand dynamics in the second half of the year, still point to upward pressure on rates.
  • Although we are testing support near 1.2%, watching to see if the dip below that level will hold, the two-month rate of change for the 10-year has already hit a historical extreme and we wouldn’t recommend chasing falling rates.

Technical update

  • The S&P 500 Index fell 1.6% yesterday, while the Dow suffered its worst loss since late-October, dropping 2.1%.
  • The S&P 500 bounced off its 50-day moving average yesterday, but with breadth in its worst condition since the bear market, a further sell-off is possible.
  • 4164 is the next level of support for the index, below the 50-day moving average at 4240.

Midyear Outlook 2021 has launched. While the speed can be exhilarating as economic growth accelerates, it can also be dangerous. Midyear Outlook 2021: Picking Up Speed is designed to help you navigate the risks and opportunities brought upon by the economy’s reopening for the rest of 2021 and beyond. For more information, please read our Midyear Outlook 2021.

Street View Midyear Outlook 2021

In the latest LPL Street View video, LPL Financial Chief Market Strategist Ryan Detrick takes a closer look at what the LPL Research team thinks is coming in the second half of 2021, with a special focus on the economy, policy, stocks, and bonds.

Midyear Outlook 2021: Picking Up Speed

LPL Research provides an overview of their forecasts on the economy, policy, stocks, and bonds for the rest of 2021 and beyond. Learn more in this week’s Weekly Market Commentary.

Midyear Outlook 2021 Is Here: What Does LPL Research Think Is On the Horizon?

In this week’s LPL Market Signals podcast, LPL Research’s Chief Market Strategist, Ryan Detrick and Equity Strategist, Jeff Buchbinder discuss how to navigate the risks and opportunities brought upon by the economy’s reopening for the rest of 2021.



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