October 05, 2011
Million Dollar Question: Dollar and Recession Risk Up Together
by Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.
No matter the subject to be tackled, it’s appropriate these days to update readers on the latest economic reports and what they say about the likelihood of recession. After that I’ll tackle the subject of recent strength in the dollar and what it may mean for the economy and markets.
Recession fears mount
Recession fears grew last week when the chief economist of the Economic Cycle Research Institute (ECRI), which has a weekly leading index (WLI), wrote that the US economy was dipping into recession. Their index has been right in calling for recessions over the past three cycles, but doesn’t have a long history. It also dipped to an even lower level last year and no recession was forthcoming, as you can see in the chart below—so it has given false signals.
Key Points
* Recession fears have mounted, but the picture is still mixed and it’s not yet conclusive.
* The US dollar is winning the “least ugly” currency contest, but isn’t helping stocks or commodities.
* Short-term, a stronger dollar is a negative for riskier assets … but not necessarily longer-term, if history’s a guide.