Jan 16, 2019

The recession alarms are ringing

Illustration: Aïda Amer/Axios

Economic data is pointing downward and investor sentiment is turning negative.

Driving the news: Perhaps most worrisome is the massive pile of highly leveraged debt that continues to grow. Bank of America-Merrill Lynch's monthly survey of fund managers finds that, for the first time since 2009, corporate leverage is the top concern among investors surveyed.

  • 52% of investors said they expect global profits to deteriorate — the most since 2008.
  • 60% surveyed say global growth will weaken in the next 12 months, levels not seen since the financial crisis.
  • U.S. manufacturing activity dropped in December by the most since October 2008.
  • 2018's Treasury auctions saw the weakest demand since 2008, Bloomberg reported earlier this month.
  • The yield spread between 2- and 10-year U.S. Treasury notes is the thinnest since 2007, and the yield on 2- and 3-year notes has already risen above that of 5-year notes, meaning a curve inversion.

UBS estimated in September that there was a "record $4.3 trillion in lower-quality corporate loans and high-yield bonds — up from $2.4 trillion in 2010 — that could ... see rising defaults if the healthy U.S. economy starts to wobble," USA Today reports.

  • “I view this as the most severe threat to the economy and financial system,” Mark Zandi, chief economist of Moody’s Analytics, told USA Today in response to the UBS figures.
  • Former Fed Chair Janet Yellen warned in a recent interview, “I am worried about the systemic risks associated with these loans. There has been a huge deterioration in standards; covenants have been loosened in leveraged lending.”

Still, there seems to be a consensus among many in the market that it's not yet time to panic.

  • “Investors remain bearish, with growth and profit expectations plummeting this month,” said Michael Hartnett, BAML's chief investment strategist. “Even so, their diagnosis is secular stagnation, not a recession, as fund managers are pricing in a dovish Fed and steeper yield curve.”

Go deeper: Why you should stop worrying about a recession

Go deeper

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 2:30 p.m. ET: 905,279 — Total deaths: 45,371 — Total recoveries: 190,710Map.
  2. U.S.: Total confirmed cases as of 2:30 p.m. ET: 199,092 — Total deaths: 4,361 — Total recoveries: 8,362Map.
  3. Federal government latest: Vice President Mike Pence said that White House modeling suggests "Italy may be the most comparable area to the United States" in terms of coronavirus impact.
  4. State updates: Florida and Pennsylvania are the latest to issue stay-at-home orders, totaling 34 states and Washington, D.C.
  5. 2020 update: West Virginia is latest state to delay its primary — Bernie Sanders urged Wisconsin to delay April 7 primary.
  6.  🎧 Podcast: The Defense Production Act
  7. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  8. Other resources: CDC on how to avoid the virus, what to do if you get it.

Subscribe to Mike Allen's Axios AM to follow our coronavirus coverage each morning from your inbox.

West Virginia is latest state to delay primary due to coronavirus

Photo: Barbara Davidson/Getty Images

West Virginia Gov. Jim Justice rescheduled the state's May 12 primary election to June 9 on Wednesday, citing fears surrounding the coronavirus pandemic, AP reports.

Why it matters: 23 other states and the District of Columbia haven't held primaries yet. The White House is recommending, for now, that Americans practice social distancing and gather in groups of no more than 10 people — while many states have issued stay-at-home orders.

Go deeperArrowUpdated 1 hour ago - Politics & Policy

Florida governor issues stay-at-home order

Photo: Joe Raedle/Getty Images

Florida Gov. Ron DeSantis ordered a statewide stay-at-home order on Wednesday after the number of coronavirus cases in the state rose to nearly 7,000.

Why it matters: DeSantis has been criticized for declining to order any statewide mandates to curb the spread of the coronavirus even as Florida — home to a significant elderly population — was increasingly becoming a hotspot. The order will go into effect Thursday at midnight and last for 30 days.