Have Recessions Been “Canceled?” StoneX’s Deluard Makes a Case

Key takeaways

• The frequency of US economic recession is down in recent decades
• StoneX’s Deluard tells Bloomberg: recessions have been “canceled”
• Such conditions could result a rocky summer as bonds are not priced for inflation

Bloomberg’s John Stepek featured Vincent Deluard, Director of Global Macro Strategy-Equities-Market Intelligence for StoneX, in his Money Distilled Newsletter to discuss Deluard’s recent piece in which he considers if the global cancel culture movement has come for recessions.

For historical perspective, in the second half of the 19th century and the beginning of the 20th century, US economic recessions were a relatively frequent occurrence. Roughly every decade, beginning in 1857 and lasting until the stock market crash of 1929, recession gripped the market. Stepek commented that there were some good times mixed into the period, but those are hard to spot between the panics.

In Deluard’s recent piece titled “The Cancellation of Recessions,” he offers data to support his provocative idea. “Recessions covered 40% of the 19th century but just 1% of the last 16 years,” Deluard said. Between the end of World War II and the end of the Cold War, the US spent 15% of its time in recession, compared to 5% of the time since the 1990s.

So, what caused this change? Deluard says the impetus resulting in fewer recessions was three-fold. First, since the end of the Great Depression, US policymakers have come to view recession as a condition to avoid and work to prevent, whereas governments previously considered it the “natural order” of a dynamic market.

Secondly, the aging population of the US is resulting in permanently higher public spending. Deluard said, “half of the government spending is structurally growing by 10% a year as if the US were fighting a permanent high-intensity war.”

Lastly, Deluard said there has been a de-materialization of the US economy. Physical goods tend to be the most cyclical, and the manufacturing of these goods has been outsourced to other countries, such as China. That, he argues, helps make domestic economic downturns less acute.

Regardless of the cause, it’s indisputable that US recessions have dropped in frequency. Deluard believes that, due to this, US stocks should permanently trade at higher valuations but further posits that it could still be a rocky summer, as bonds are not priced for a more inflationary environment. If bond yields continue upward, valuations will have to come down.

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Read the full article here.

Writer: Dan Morales
Expert: Vincent Deluard, Director of Global Macro Strategy

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