Morgan Stanley: Recessions Aren't What They Used To Be

There’s no question that the stock market is off to a shaky start in 2016, sparking fears that a recession is imminent. In a new report, Morgan Stanley analyst Manoj Pradhan discusses why the modern economic world may be in for a growing number of recessions, but that they might not be as bad as those in decades past.
 

In terms of recession frequency, Pradhan says that Morgan Stanley’s premise that recessions will begin to happen more frequently is based on a decline in developed market (DM) and most emerging market (EM) economic growth rates.

“A recession is twice as easy to see if trend growth is now (using the US as an example) 1.5% [rather] than the 3% it used to be,” Pradhan explains.

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However, the decline required to reach negative growth and trigger a recession is also much smaller and less damaging. That means the likelihood of a deep recession will be smaller in coming years.

“A deep recession therefore requires the non-tradable/services sector to roll over, or a substantial shock to the tradable sector from China/EM," Pradhan concludes.

Traders that believe the U.S. is on the cusp of its next recession should consider selling the SPDR S&P 500 ETF Trust SPY.

Disclosure: the author holds no position in the stocks mentioned.