Oxford Economics says five warning signals associated with earlier global recessions are present again, with artificial intelligence central to the current risks. Every global recession over the past 50 years followed oil shocks, monetary tightening, booming asset prices, concentrated investment and insufficient pricing of risk. Elevated energy costs, higher bond yields and AI now echo earlier oil shocks, Paul Volcker's interest-rate increases and the dot-com bubble. Oxford Economics global macro research director Ben May said higher energy prices and bond yields have not yet exerted their full effects. May said only a further intensification of those pressures, or a sharp reversal in AI, would cause a global recession. Current conditions most closely resemble the approach to 2001, the mildest of the past half century's six global recessions.
The iShares Semiconductor ETF (SOXX) lost about 23% over the past month through Wednesday's close. SOXX now trades roughly 31% beneath its record high. Alphabet shares declined nearly 16% over a month. Meta Platforms and Oracle shares each fell about 13% over the same period. Oxford Economics characterized the recent steep declines in some hyperscaler shares as an early warning.
However, the broader market has advanced. The Invesco S&P 500 Equal Weight ETF (RSP) rose 6.4% over the past month. RSP finished Wednesday at a record high. The capitalization-weighted State Street SPDR S&P 500 ETF Trust (SPY) declined 0.4% over the month. The average S&P 500 stock therefore outperformed the index by nearly seven percentage points over that period.
The iShares 20+ Year Treasury Bond ETF (TLT) gained 6% over the month. The 10-year Treasury yield declined about 42 basis points to 4.89%. The 30-year Treasury yield fell about 39 basis points to 5.27%. The two-year Treasury yield dropped about 22 basis points to 4.61%.
Oxford Economics said crude prices more than tripled over 18 months before the 2001 recession. Brent crude has risen about 59% this year. Brent traded around $97 a barrel on Thursday morning. However, May said oil has less influence on the global economy than previously. Oxford Economics is monitoring borrowers' actual financing costs rather than policy rates. The AI boom combines surging asset prices with excessive investment concentrated in one sector. Oxford Economics said technology contributes more to US growth now than in 2000.
Credit spreads remain narrow despite this year's sharp increase in bond yields. Stock-price gains have also remained strong. Bad news could consequently cause markets to reprice risk suddenly.
The deepest downturns over the past five decades involved fiscal or financial crises, including Asia in 1997, the eurozone crisis and 2008. Comparable crisis conditions are absent today. Household and corporate debt have not surged in advanced economies. Oxford Economics doubts that a fiscal crisis is imminent. Oxford Economics data show that advanced economies entering recession in 2001-2002 experienced an average peak-to-trough output decline of less than 2%. The comparable average decline in 2008-2009 was close to 6%.
May said improving economic resilience may be reversing, particularly because supply shocks have become more frequent since the pandemic and governments have adopted more interventionist policies. Oxford Economics continues to forecast 2.8% global growth in 2027. The five warnings indicate a late-cycle economy with greater underlying fragility, rather than a recession already under way.
Recession Signals Reemerge Amid AI and Energy Risks
BenzingaShare
Summary
Recession signals have returned with macro conditions showing signs of past downturns, according to Oxford Economics. Five key indicators are flashing red, with AI development and energy costs at the forefront. Current trends mirror the 2001 recession, featuring rising energy prices, higher bond yields, and AI-driven market concentration. The SOXX ETF has lost 31% from its peak, while tech giants like Alphabet and Meta also slide. Meanwhile, RSP hits a record, and Treasury prices rise as yields fall. The fear and greed index suggests growing unease, though Oxford Economics notes the absence of major fiscal shocks seen in deeper crises.
Source:Show original
Disclaimer: The information on this page may have been obtained from third parties and does not necessarily reflect the views or opinions of KuCoin. This content is provided for general informational purposes only, without any representation or warranty of any kind, nor shall it be construed as financial or investment advice. KuCoin shall not be liable for any errors or omissions, or for any outcomes resulting from the use of this information.
Investments in digital assets can be risky. Please carefully evaluate the risks of a product and your risk tolerance based on your own financial circumstances. For more information, please refer to our Terms of Use and Risk Disclosure.