What Markets Are Saying About When to Expect a Recession

The possibility of an impending recession has been a topic of concern for economists, investors, and the Federal Reserve for several months. However, a growing number of experts now believe that a downturn might not occur until early next year, contrary to earlier predictions. Here’s a roundup of recent calls from market insiders:

  • Bank of America CEO Brian Moynihan, who initially forecasted a recession for this year, now believes it could happen in early 2024 instead.
  • Vanguard economists, in their mid-year outlook, stated that while a recession remains probable, there is an increased chance of it being delayed from 2023 to 2024.
  • JPMorgan Chase economists, in a recent note, mentioned the possibility of a synchronized global downturn sometime in 2024.

These delayed recession predictions are not entirely unprecedented. Last year, investors and economists anticipated a recession in early 2023 following the Federal Reserve’s aggressive interest rate hikes aimed at curbing inflation. However, with the economy proving more resilient than expected, and the US successfully avoiding a recession thus far, the case for a 2023 downturn has lost its strength, leading to a shift in expectations.

David Grecsek, a managing director in investment strategy and research at wealth management firm Aspiriant, remarked, “We’re kicking the recession can down the road. You have to recognize that boy, we keep kicking this can—doesn’t it just mean that we’re not going to have a recession?”

The difficulty in accurately predicting the timing of a recession lies in the lag between the Federal Reserve’s rate hikes and their impact on the economy. Fed Chair Jerome Powell recently stated that it would take “a year and change” for the rate hikes to fully permeate the economy. Since the rate-hiking cycle began in March of the previous year, the effects could soon take hold. If the economy remains robust through the third quarter, a recession might not materialize, according to Grecsek.

Market indicators offer mixed signals regarding recession odds. The stock market, which recently entered a bull market, has shown little indication this year that an economic downturn is imminent. The Russell 2000 index, tracking small-cap stocks that serve as domestic economic indicators, has experienced a 6.8% gain for the year, suggesting growing risk appetite among investors. The consumer discretionary sector of the S&P 500 has also seen a significant rise, driven by strong economic data reflecting robust consumer spending.

Conversely, the bond market tells a different story. The New York Federal Reserve’s recession probability model, which analyzes the spread between 3-month and 10-year Treasury yields, shows a roughly 71% probability of a recession by May 2024—the highest reading since 1982. Additionally, the two-year and 10-year Treasury yield curves remain inverted, a phenomenon that has preceded all 10 US recessions since 1955.

Tim Courtney, the chief investment officer at Exencial Wealth Advisors, notes that there is no consensus on Wall Street regarding the future of the economy due to the unique circumstances of the past few years, including the pandemic, government stimulus, and aggressive interest rate hikes. With mixed data and unprecedented conditions, investors are uncertain about what lies ahead.

In conclusion, while experts and market indicators offer varying perspectives on when a recession may occur, the future remains uncertain. The markets are grappling with unprecedented circumstances, leaving investors unsure of what to expect.

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