Is the stock market foretelling the next recession?

Washington

IT'S hard not to wonder: Is the stock market telling us something? True, the market's record in forecasting recessions is horrendous. Stocks often move according to whim or fad. But just because the market is wrong much of the time does not mean that it is wrong all the time. Could last week's turbulent trading be one of the times when it is right? By Friday's close, stocks had dropped 6 per cent for the week, a paper loss of US$1.5 trillion, says Wilshire Associates. Are we staring at the next recession?

The sell-off originated in China with a weaker-than-expected report on manufacturing activity. This triggered a sharp drop in Chinese stocks, which spread to the US and European markets. Behind this chain reaction is a huge transfer of economic power from advanced countries (mainly North America, …