How Do Economists Know When We’re in a Recession?

The “R” word, recession, is the one capital markets don’t like to hear when it comes to financial industry vernacular, but how does one determine whether we’re in a recession or not? The definition might seem cut and dry, but it’s also open for interpretation among economists.

The most common indicator of a recession involves two quarters of negative gross domestic product (GDP) growth. However, there seems to be some disagreements between economists on whether GDP should even be used to determine a recession.

“GDP tells us how big the size of the pie is,” said Justin Wolfers, professor of economics and public policy at the University of Michigan. “It doesn’t tell us where the people are getting fair slices. So we should care about the distribution of income, not just how much of it there is.”

Recession or not, investors can take advantage of U.S. equities gaining strength over international equities or vice versa. Will the impact of a U.S.-China trade deal mute the talk of a recession?

For investors who may be sensing continued upside in U.S. equities over international equities, the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI) offers them the ability to benefit not only from domestic U.S. markets potentially performing well but from their outperformance compared to international markets.

RWUI features:

  • Seeks investment results, before fees and expenses, that track the Russell 1000®/FTSE All-World ex-US 150/50 Net Spread Index (the “index”).
  • The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
  • The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the FTSE All-World ex-US Index (the “Short Component”).

Worries of slowing global growth and inverting yield curves haven’t slowed down the U.S. For investors who are worried that U.S.-China trade wars will feed into more weakness for U.S. equities, they can feel at ease knowing that when it comes to relative value ETFs, the United States is still the place to be.

On the other side of the trade, the Direxion FTSE International Over US ETF (NYSEArca: RWIU) gives investors the opportunity to capitalize on their hunch that international equities will outdo U.S. equities, but given the latest trade talk progress, can this strategic play come into fruition?

For more relative market trends, visit our Relative Value Channel.