A Declining Stock Market Portends a Recession in 2013
Don’t get your hopes up for 2013. After a fairly robust year in 2012, the stock market is expected to experience real turbulence in 2013. America will experience an economic slowdown—one that could rival Europe’s.
Europe’s debt crisis seriously impacted North American sales during the first half of 2012. For American companies with operations in Europe, a weaker euro translates into weaker European sales. Demand is also tapering off in formerly reliable growth markets, including China, India and Brazil.
At the same time, you don’t need a full-blown correction to have a reduction in corporate earnings. To get the dominos started, you just need a slow growth rate with rising costs, and that’s exactly what America has. In 2013, GDP is expected to be just 1.7%. While the Federal Reserve says inflation will increase just two percent in 2013, global indicators suggest it will be much higher.
Thanks to the worst drought in America since 1936 and water shortages in Russia and South America, world food prices are expected to hit all-time highs in the first quarter of 2013 and keep rising.21
Despite the trillions of dollars the Federal Reserve has dumped into the U.S. economy, unemployment is rising, company profits are falling, financial markets are fragile, and the housing sector is still in disarray.
Americans will be entering 2013 with depleted savings and increasing costs on the heels of a devalued dollar. By all appearances, a U.S. recession in 2013 is all but inevitable.
The Dow Jones has done well this year, but remember that stock indices are only as good as the companies that make them up. If they don’t do well, the indices won’t do well. Companies are underperforming and providing downward projections. This will be reflected in stock-market charts in 2013.