What are likely economic scenarios over the next two to three years?

In My Humble Opinion
1

I can’t even begin to list the questions and confusions I have about future economic developments. If inflationary pressure mounts, won’t the Federal Reserve nudge only gently to maintain a Goldilocks interest rate and keep the economy on a smooth course? Or will even a slight miscalculation plunge stocks into a bear market? And if stocks do fall, will they soon recover, as they did after the 2002 and 2008 crashes, or will malaise last longer? Will the dollar continue to weaken? Googling for past relationships between, say, interest rates and GDP growth may be misleading: the levers of both regulators and the free market act with knowledge of, and to counter, past correlations, so financial trends continually explore new territory.

Is it most productive to consider the entire global economy, or to focus just on the U.S.? I hope this doesn’t become another Trump-bashing thread, but what are the likely effects of likely Administration actions?

I hope knowledgeable Dopers lay out the most likely scenarios that may arise over the next 2 or 3 years. (Consider shorter or longer time-frames if that’s more convenient.) One scenario is continued rises in both GDP and stock prices; what is the probability we will still be setting record SP500 levels 2 or 3 years from now? If there is a recession on the horizon, what will cause it? A foreign crisis? Domestic politics? Another credit crisis or building bubble? What will be the leading indicators of recession? Is it time to buy junk bonds or time to sell them?

Increasing deficit spending and lowering interest rates are two ways for government to mitigate recession (if inflation is not a problem), but debt is already at troubling levels, and interest rates are too low to allow much additional adrenalin. Should this be a serious concern?

2

My understanding is we were probably going to face a recession in the next 2-3 years, but the tax cut bill probably delayed that until after 2020.

3

If anyone actually knew that, they would most likely be both supernatural and extremely wealthy. We are overdue for a recession in historical terms but that is like a gambler’s fallacy. It doesn’t have to happen at any particular time but it could if the right events line up. The U.S. economy is currently very strong and could take a moderate beating before that assessment changes. Be thankful for that while it lasts because it won’t always. It is a fugazi that can easily be disrupted.

4

I’m not asking anyone to foresee the future like a magician!

I’m just hoping an economics expert will list some of the more plausible scenarios, and, perhaps assign very rough probabilities. IF a recession (or stock market crash) should occur, what will be the likely cause? How are indicators like inflation, interest rates, dollar strength likely to behave at the onset of recession? (In another thread, a suggestion was made that interest and/or inflation rates would be tightly correlated with recession — is that really certain?)

5

Young man, I believe the market is going to fluctuate.

– JP Morgan

6

Good call.

I’ve been telling my clients to expect a pullback 8-10% by the end of summer. That’s just playing the odds but we’re overdue for a correction. Not a crash, mind you, but a correction.

With the economy growing such as it has I’d expect things to have some ups and downs over the next few years but mostly up. But if oversupply comes about and consumer spending tails off we could head into a recession by then.

7

I’ve spoken to two different financial planners within the past month or so. One says we are way overdue for a huge market correction, which should be happening any day now. And he thinks it will be severe and long lasting. The other guy says, yeah historically speaking we’re overdue for a correction, but there’s a case to be made for the market continuing steadily upward. Mostly due to the recent tax cuts. As I’ve been putting more and more money into stocks over the last 12 months, I certainly hope the 2nd guy is correct.

8

History tells us a recession will happen soon.

Whether “soon” means “This Thursday” or “November 2019” no one can say. If they could, recessions wouldn’t happen. Odds are it’ll be in the next two years, though.

9

I’d be cautious about that. Although the guy saying it’ll be severe and long-lasting is likely wrong, as well. Best guess is a standard correction - somewhere around 10% - that the market recovers from in six months or less. Having some cash would be good so you can buy equities at a discount when it happens and don’t be exposed on margin.

10

I’m not even sure a miscalculation is required. The aggregate price of stocks is getting way out over its skis, and one hypothesis as to why is that the artificially low interest rate environment we’ve been in since The Great Recession has kept investors from getting yield in bonds. So they buy stocks and properties instead. Under this hypothesis, a return to normal may cause a sharp correction in the market, as well as stop the increase in real estate values if not reverse them as well. But we can’t not return to normal - continuing the asset price inflation and idly watching actual increases in CPI would be worse in the long-term.

It’s really unclear what the effect of an asset price correction would be on the real economy, but it would probably be enough to push us into recession. I suppose we’ll see.

11

Near and medium-term: not sure, but the tax cuts will help businesses weather one recession but that will only work once because after that they’ve blown their padding. The tax bill won’t help consumers.

Long-term, the astronomical national debt made even worse by the tax bill will hurt everyone.

12

Over 2-3 years? I have no idea.

Over 10 years? I think we’ll see growth slow considerably due to a variety of problems we’re not prepared to deal with.

First: I have seen the future of baby boomer retirement – and it is called “a relative’s couch”. 75 million of these fools will be retiring over the next decade, and the majority have little or nothing set aside. These folks have frantically spent every dime they’ve got for 40 years and that spending will come to a grinding halt (at the individual level). I don’t know the total effect on the economy but I think it will be large as they stop paying rent, taxes, buying things, and eat up the disposable income of their relatives.

Second: The condition of public (and some private) pensions in this country is appalling. These people and many already retired will be joining the destitute boomers over the next decade. Their effects will be felt in the various safety nets, their (forced) reduced spending, and the ever-larger consumption of state and local taxes to fund these retirement programs. This will get worse over time because the money simply isn’t there.

Third: I keep bringing this up like Chicken Little, but the drought conditions in the west will eventually render some places uninhabitable. I think the effect of large abandonment will be gradual, but huge. There simply isn’t enough water in reservoirs to keep large desert cities supplied. Watch what happens in Cape Town this year, then scale it up to Los Angeles, Las Vegas, Phoenix, etc. Day zero for Cape Town’s water is mid-April, so we’ll get to see how this plays out in a modern city.

These things have me convinced that we will be facing ever larger burdens in the next decade, from our own relatives (I will start a thread on this soon), increased taxes, decreased pensions/SS, and slow or negative economic growth.

My financial advisor is convinced the 4% withdrawal rate is fixed, like it’s a law of nature or something. I don’t think it will work for the next decade(s), so I’m changing my plans, investing more, and delaying retirement in hopes of managing on a much smaller number. Next year may be a banner year, but I’m not optimistic beyond that.