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Economists, investors and the Federal Reserve have been warning for months that a recession could hit later this year, but a growing number of experts believe a recession may not come until early next year.
Here are some of our recent calls:
- Bank of America CEO Brian Moynihan told CNN on Tuesday that the US economy could fall into recession early next year, rather than this year as initially expected.
- Vanguard economists wrote in their mid-year outlook that a recession is now likely and “increasingly likely to be delayed from 2023 to 2024.”
- “A global recession is possible sometime in 2024,” JPMorgan Chase economists said in a note last week.
Pushing back recession predictions is nothing new. Last year, investors and economists predicted that the U.S. could slip into recession as early as 2023 after the Federal Reserve began its aggressive interest rate hike policy to tame inflation. With the economy proving more resilient than expected and the U.S. avoiding a recession so far, the case for a 2023 recession is crumbling. In response, bets are starting to be pushed further out.
“We're putting off the problem of a recession,” said David Greczek, managing director of investment strategy and research at asset management firm Aspiriant Inc. “We keep putting it off, but we need to recognize that doesn't just mean a recession isn't going to happen.”
One of the reasons it's so difficult to pinpoint when a recession will start is because there is a lag between the Fed raising interest rates and them starting to affect the economy.
Federal Reserve Chairman Jerome Powell told Congress earlier this month that it would take “a little over a year” for the Fed's interest rate hikes to have an effect. This could have a negative impact on economic development. It has been more than a year since the Fed began its interest rate hike cycle in March of last year, so theoretically the rate hike would be fully implemented. You'll catch it quickly.
Greczek said if the economy remains strong through the third quarter, a recession may not happen.
But “we're nowhere near that stage right now,” he said.
What are the markets suggesting about a possible recession? It depends on where you look.
The stock market, which was in a bull market just a few weeks ago, has shown little sign of an economic downturn so far this year.
Small cap stocks in the domestic economy Because we are pioneers of Financial companies and other small-cap stocks with exposure to primarily U.S. revenue streams have also joined modest gains in recent weeks. The Russell 2000 Index, which tracks the performance of small-cap stocks, is up 6.8% this year.
That suggests investors' risk appetite is increasing as market breadth widens even as large-cap stocks continue to dominate the rally.
Another positive sign is that the S&P 500 consumer discretionary sector has risen more than 30% this year, buoyed by strong economic data that suggests Americans remain busy spending.
and Money market funds recorded outflows for the first time since April in the week ended June 14, according to the Investment Company Association. Outflows continued the following week.
It's another sign that Wall Street is starting to feel more positive about the economy. This suggests investors are starting to pull cash out of traditionally safe money market funds and put it into the stock market, said Brian Mulberry, client portfolio manager at Zacks Investment Management.
Yet the bond market sees it differently. The New York Fed's Recession Probability Model calculates the likelihood of the U.S. falling into a recession within the next 12 months by tracking the difference between three-month and 10-year Treasury yields. The model suggests there's about a 71% chance the economy will fall into a recession by May 2024, the highest since 1982.
The 2-year and 10-year Treasury yield curves also remain inverted, and this phenomenon According to the Federal Reserve Bank of San Francisco, all 10 U.S. recessions since 1955 occurred during this period.
So what does this mean? Tim Courtney, chief investment officer at Exsential 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 unusual for markets and the economy, Courtney said, due to the pandemic, subsequent federal stimulus and aggressive interest rate hikes by the Fed. That, combined with mixed data painting an uncertain picture about the health of the economy, has left investors unsure about the future.
“There's no historical precedent that we can point to,” he said. “I don't think the market really knows what to expect.”
El Niño is a climate phenomenon that causes surface waters in the central and eastern Pacific Ocean to warm, which could affect more than just this year's weather.
Scientists from the National Oceanic and Atmospheric Administration (NOAA) confirmed earlier this month that an El Niño phenomenon is developing and that this one is likely to be stronger.
This could pose a worrying headwind to U.S. economic growth, my colleague Samantha DeRouya reports.
El Niño can cause an increase in tropical cyclones in the Pacific Ocean, extreme weather across the Pacific, and extreme weather that can lead to natural disasters such as floods, wildfires, and hurricanes.
Not only does El Niño threaten lives and livelihoods, it also poses a threat to the U.S. economy, with Americans likely to start paying more for food than they have in the past two years.
The airline industry, which has benefited from a travel boom over the past few years, could see an increase in flight delays and cancellations due to bad weather.
Please see here for the detail.
Monday: ISM Manufacturing PMI for June. US stock markets close early at 1pm ET for the 4th of July holiday.
Tuesday: The U.S. stock market will be closed on July 4th.
Wednesday: Minutes of the FOMC June meeting.
Thursday: June Services PMI, May Job Openings and Labor Mobility Survey, and Jobless Insurance Claims.
Friday: May employment statistics.
