In September, billionaire investor Carl Icahn (Trades, Portfolio) was in the news after he claimed that the U.S. economy was troubled. He cited a number of facts to buttress his position about a gloomy economic outlook.
In his words, “I respect a lot of guys in Congress; a lot of senators are smart guys. But we have to do something about this. We already have major troubles. [Fed Chief] Janet Yellen and the Fed are holding this economy up by a thread, which is causing huge bubbles already.”
He particularly took issue with some statements made by Hillary Clinton, who is seeking the presidency on the Democrat ticket. However, many people started calling for Icahn's head, and they were quick to offer supposed facts to refute his claims. Critics were also quick to ignore his message while distorting his critique of Clinton as an endorsement for Donald Trump. Some of the recent events in the economic landscape suggest that the U.S. economy is indeed troubled.
Economists see the signs of a recession ahead
The U.S. presidential election is probably the biggest market-moving event that will be recorded this year. Clinton appears to be taking a lead, at least in the polls, but the level of uncertainty in the political landscape suggests that the race is far from over. The huge difference in the thought process expounded in the policies proposed by Trump and Clinton is one of the leading causes of economic uncertainty.
Gregory Daco, chief U.S. economist at Oxford Economics, notes that “a lot is weighing on upcoming elections.” More so, Kevin Hassett, who observed that the U.S. economy is two times more likely to enter a recession in the year after a presidential election, says, “In a presidential election year, when do they peak? Policy uncertainty is at peak right at the moment of the election.”
Interestingly, investors' gloomy outlook confirms Icahn's words – it doesn’t matter whether you support Trump or Clinton. The economy is troubled.
And according to trading statistics garnered from various platforms, the evidence is clear that the market could remain choppy until the end of the year. Emma Morris, a Partnership Director 24option trading platform, confirms this saying that "economists are worried about the economic outlook suggests that the economic indicators are signaling a potential increase in market volatility."
In a Wall Street Journal survey of economists in September, economists were asked if they think the uncertainty from the elections is having a detrimental effect on the economy. Seven percent of the respondents claimed that the political uncertainty has a "significant effect" on the economy, 56.1% of respondents said it has a "somewhat detrimental effect," and only 36.9% said that the political uncertainty "doesn’t have a meaningful" effect on the economy.
Should investors buy on the dip or stay on the sidelines?
When the economy starts to show the signs of a downturn, the fight or flight instinct of investors often automatically kicks into action. Investors with a fight instinct often see the weakness in the economy as an opportunity to buy up their favorite investments on the dip. Investors with a flight instinct often see the weakness as a sign to take their previous gains off the tables while waiting on the sidelines for the current volatility to subside.
Investors with a fight instinct are likely to see the volatility as an opportunity to profit from the markets. Such investors often use the volatility to their advantage in trading Binary options, futures and forex. Investors with a fight instinct also leverage the weakness in the economy to enter the equities market by buying undervalued stocks at a discount.
Investors with a flight instinct are likely to exit the markets in times of economic weakness and geopolitical uncertainties. However, smart investors don’t like to keep their wealth as cash; hence, smart investors with a flight instinct are likely to take up positions in safe-haven investments such as gold and other precious metals.
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