Why Recessions Aren’t What They Used to Be

StoneX's Vincent Deluard argues that US recessions are becoming less frequent and less severe due to the increasing reliance on intangible assets and consistent government stimulus. This perspective suggests that significant market corrections may be less likely than in the past, assuming this understanding becomes widely accepted.

Analysis

Vincent Deluard, Director of Global Macro Strategy at StoneX, posits a structural shift in the U.S. economy, characterized by a decreased frequency and severity of recessions. This evolving dynamic is attributed to two primary factors: the increasing dominance of intangible assets within the economic framework and the persistent influence of government stimulus measures. According to Deluard's thesis, if this new economic paradigm is widely recognized, it implies that market corrections are likely to be less severe than historical precedents. This outlook, supported by a 'strongly positive' general sentiment (score 0.75) and an 'optimistic' tone with a market impact score of 0.7, suggests a potential moderation in traditional business cycle volatility, with significant implications for market behavior and investor expectations concerning economic downturns as highlighted by themes such as 'Economic Data' and 'Fiscal Policy & Budget'.

Key Decisions for Investors

• Investors should evaluate the implications of a potential regime shift towards less severe recessions, as theorized by StoneX, which could influence long-term asset allocation and risk management strategies.
• Consider adjusting expectations for market drawdown severity and recovery timelines if the U.S. economy continues to be significantly shaped by intangible assets and sustained fiscal stimulus, as outlined in the thesis.
• Monitor the evolution of government spending patterns and the contribution of intangible sectors to economic growth as key validation points for the thesis of structurally shallower economic downturns.