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The stock market may have been in free fall last week, it seems to have caught itself today and has recovered, with the Dow up well over 1,000 points. Whether this turnaround will last and improve remains to be seen. Some stock analysts believe the market has moved into bear territory after a very long stretch of positive trends. Last week’s downward spurt, of course, has many traders and economists wondering whether we are close to a recession. Chances are we are nearing a significant economic decline, but it is still a little early to say when it will start and how severe it will be. 

Overall, the US economy seems to be fairly solid, as noted by Fed Chairman Powell last week. But the underlying figures have begun to show some soft spots. Industrial production in January fell 0.8% and capacity utilization dropped to 76.8 from 77.1; retail sales in January rose a modest 4.4% y/y. The ISM Manufacturing PMI for the US declined to 50.1 in February from 50.9 in January. New orders contracted (to 49.8 from 52), production slowed (to 50.3 from 54.3) and both employment (to 46.9 from 46.6) and inventories (to 46.5 from 48.8) continued to fall.

Considering the impact of the corona virus on global supply chains, it is expected that the negative impact will persist and the numbers for February and March will be poor.

On the positive side, the University of Michigan consumer sentiment index rose to 100.9 from 99.8.  This is the highest reading since March 2018. At the same time, consumer expectations climbed to 92.6 from 90.5. The next release of these numbers is unlikely to be that good.