Bloomberg analyst Mike McGlone says there are hints that a severe contraction of the American economy is approaching.
The commodities expert says on the social media platform X that data is showing a dramatic plunge in home sales amid rising interest rates, a situation similar to the 2008 financial crisis.
McGlone’s chart shows that the same divergence between home sales and interest rates previously led to a massive crash in the housing markets before an eventual recession and an interest rate cut.
“The Housing Trough May Be Deeper Than 2011 – Plunging US existing home sales vs. still rising interest rates may be a clear sign of what’s changed toward a trajectory for a severe recession. My graphic shows the 12-month average of home sales falling at a velocity last matched during the Great Financial Crisis.”
The analyst also looks at the Russell 2000, an index of the smallest 2,000 stocks in the Russell 3000 Index, which can be used to gauge risk appetite given the volatile nature of smaller market cap securities.
McGlone says that the overall trend is down, while liquidity is being diminished, and that based on history, markets are still roughly two years away from an easing cycle that can help support prices.
“Seeking Lower Plateau Is the Current Trajectory –
The trend is down yet liquidity is still being removed. This may be all that matters for risk assets as guided by small-cap stocks and the Fed.”
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Featured Image: Shutterstock/Tuso949/Natalia Siiatovskaia