We believe the U.S. economy is in much better shape than the rest of the developed world. After a record expansion, demand may be moderating, but we do not see the fundamental justification for recession anytime soon. Solid consumption, high employment, low interest rates, and inflation all factor into our thought process. We view the flattening/inversion of the U.S. Treasury yield curve as more of a reflection of valuation relative to global sovereign bond rates than an indicator of immediate domestic risk. Yet we have to have recession—someday—and we suspect the likeliest cause may prove to be a confluence of global events, including a rancorous U.S. elections campaign season. Indeed, at the end of 2020 and the beginning of 2021, businesses and consumers may simply decide to “sit this one out” and wait to see what happens with the winning administration.
John Lynch is chief investment strategist at LPL Financial.