The longest expansion in U.S. history may be over, because there's at least a 50% chance of a recession this time next year, two market observers said today.

The prediction of at least a recession scare in the first or second quarter came from two market observers on Monday at the Legg Mason 2020 economic outlook.

“We think the recession risk has been rising over the course of this year,” Jeffrey Schulze, an investment strategist at ClearBridge Investments, said at the Legg Mason event. “We’re at a fork in the road.”

But while Schulze put the chances of a recession at 50%, a second speaker had a more pessimistic view.

“I think you are underestimating [the recession potential]. I think it is more than 50/50,” said Kim Catechis, head of investment strategy at Martin Currie. “I think you are likely underestimating the damage done on corporate profitability. It is underreported.”

Schulze said economic indicators including financial stresses, business activity, retail sales, jobless claims and inflation, along with profit margins starting to decline, show the economy is leaning in the direction of a recession.

“The overall signal, at the end of October, has turned to yellow, which indicates a rising recession risk,” he said.

The data often leads to a recession six to nine months afterwards, Schulze said. “We do think there will be a recession scare sometime in the first quarter or second quarter of next year,” he said.

On average, these signals turn yellow just before a recession, he noted. By contrast, almost every time the indications signaled red, the country has gone into into a recession

Still, Schluze hedged his recession prediction and emphasized the Federal Reserve was a key in what happens in 2020. He noted indications were yellow in 1995, 1998 and 2016, but Fed policies prevented recession.

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