Is a Double-Dip Recession Possible in 2013?

For the first time since 2007, investors are seeing major stock indices reaching new highs in the market. These new highs have managed to generate a lot of excitement and enthusiasm amongst investors. And it is not surprising, considering that after a long time Dow Jones Industrial Average is once again nearing 14,000.

Why This Sudden Surge in Stock Indices?

Until December 31, 2012, there was a lot of doubt about the fiscal cliff that was all that economists were talking about. In addition, there were the rising Eurozone crisis and Japan trying to weaken its currency. The moment the government decided to settle for a compromise on this cliff, a lot of investors heaved a sigh of relief, which resulted in a buying spree. While investors are jumping with joy seeing the stock indices rising, many economists are skeptical about this increase.

Is a Double Dip Recession Possible in 2013?

Economists suggest that this surge in stock indices has a resemblance to what happened in 2007. Investors may have forgotten how the indices surged in 2007, only to come crashing down and taking many investors along with them.

While stocks are performing well in the market, do not be fooled by it. There are signs to show that it is not a bear market. In fact, investors should be a little wary. All signs indicate that it is a bull market, just like it was in 2007 – a sudden spike in stocks followed by a crash.

While there has been a substantial increase in the trading volume and more investors are investing in commodities and emerging markets, all does not seem hunky-dory. It’s like the calm before the storm. How long before the stocks crash is anyone’s guess, but based on the signs, it could happen anytime. So the investor confidence and exuberance that is presently seen are not something to get too excited about just yet.

What investors are forgetting is that the United States is still threatened by its fiscal policy, and this threat is quite real. While politicians in Washington have decided to postpone the debate on the debt ceiling until May 2013, investors should not forget that budget cuts and the new spending plan for the federal government will happen long before May. In addition, the Federal Reserve and the European Central Bank are now easing their rather ineffective monetary policies.

With countries in the European Union falling into recession one by one; with Japan facing serious problems; and because back home in the United States, corporations and consumers will reduce their spending; a double-dip recession is definitely not out of the picture until the economy gets back on the fast track to growth.