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Economists, investors and the Federal Reserve have been warning for months that a recession could hit later this year. But experts are increasingly saying a recession may not hit until early next year.
Here are some of our recent calls.
- Bank of America Chief Executive Brian Moynihan told CNN on Tuesday that the U.S. economy could enter a recession early next year, not this year as originally expected. Indicated.
- Vanguard economists said in their mid-year outlook that a recession is likely, “increasing the likelihood that a recession will be delayed to 2023-2024.”
- Economists at JPMorgan Chase & Co. said in a memo last week that a “global recession in 2024” is possible.
Delayed recession forecasts are nothing new. Investors and economists predicted last year that the U.S. could enter a recession in early 2023 after the Fed launched an aggressive rate-hiking campaign to curb inflation. The evidence for a recession in 2023 is crumbling as the economy has proven more resilient than expected and the US has so far avoided a recession. So the bets are starting to move further outwards.
“We’re trying to rule out the possibility of a recession going forward,” said David Grecek, managing director of investment strategy and research at asset manager Aspyriant. “You have to admit that boy. We keep kicking this can. Doesn’t that just mean we’re not in recession?”
One reason it’s hard to pinpoint exactly when a recession will begin is the lag between the Fed rate hike and when it starts to affect the economy.
Fed Chairman Jerome Powell told Congress earlier this month that a Fed rate hike would take “a year and a change” to change policy. through the economy. It’s been over a year since the Fed kicked off its rate hike cycle last March, so that means a rate hike is perfectly possible in theory. Settles in quickly.
If the economy stays strong through the third quarter, a recession may not occur, Gresek said.
But “we’re still a long way from there at the moment,” he says.
What are the markets suggesting about a possible recession? It depends on where you look.
The stock market, which entered bull market territory just a few weeks ago, has shown few signs this year that the economy may be headed for recession.
Small-cap stocks that influence the domestic economy Because I’m a bell ringer of Financial companies and their exposure to primarily US income streams have added to the narrow bull market in recent weeks. The Russell 2000 Index, which tracks the performance of small caps, is up 6.8% for the year.
This suggests investors’ appetite for risk has increased as the market widens, even as mega-cap stocks continue to dominate the bull market.
Another silver lining: The consumer spending sector in the S&P 500 Index rose more than 30% for the year, supported by strong economic data that showed American spending remained strong.
and Money market funds saw their first outflows since April in the week ending June 14, according to the Investment Company Institute. The leak continued the following week.
This is another sign that Wall Street is starting to feel better about the economy. Brian Mulberry, client portfolio manager at Zacks Investment Management, said this suggests investors are starting to withdraw cash from traditionally safe money market funds and put it to work in the stock market. talk.
Still, the bond market tells a different story. The New York Fed’s recession probability model calculates the probability of the US entering a recession within the next 12 months by tracking the spread between 3-month and 10-year Treasury yields. The model shows that the economy has about a 71% chance of slipping into recession by his May 2024. This is his highest figure since 1982.
The yield curves for 2-year and 10-year bonds also remain inverted, a phenomenon It has preceded all 10 US recessions since 1955, according to the San Francisco Federal Reserve Bank.
So what does this mean? Tim Courtney, chief investment officer at Essential Wealth Advisors, said there is no consensus on Wall Street about the future of the economy.
That’s because the past few years have been unique for markets and the economy due to the pandemic and subsequent federal stimulus spending and the Fed’s aggressive interest rate hikes, Courtney said. Combined with a murky picture of the health of the economy, investors are left in the dark about what will happen next.
“There is no historical precedent that we can point to,” he said. “I don’t think the market really knows what’s going to happen.”
El Niño, a climatic phenomenon that warms the surface waters of the central and eastern Pacific, could affect weather this year.
Scientists at the National Oceanic and Atmospheric Administration (NOAA) confirmed earlier this month that an El Niño was forming and is likely to intensify this time.
That could create alarming headwinds for US economic growth, reports my colleague Samantha Deruya.
El Niño can lead to more typhoons and cyclones in the Pacific, extreme weather outside the Pacific, and extreme weather that can lead to natural disasters such as floods, wildfires and hurricanes.
In addition to potentially damaging lives and livelihoods, El Niño also poses a threat to the U.S. economy. Americans may have to start paying for more food than they have already paid in the last two years.
The airline industry, which has benefited from the travel boom over the past few years, could see more flight delays and cancellations due to bad weather.
Please see here for the detail.
Monday: June ISM Manufacturing PMI. The U.S. stock market closes early at 1 p.m. ET for the July 4th holiday.
Tuesday: The US stock market closed on July 4th.
Wednesday: June FOMC minutes.
Thursday: June will see PMI, May Jobs and Turnover Survey, and unemployment claims.
Friday: Employment data for May.
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