The economy may slow, but fears of a recession are ‘too much’, experts say

Although the stock market has been hit in recent months by growing fears of a recession, some experts remain cautiously optimistic about the outlook for the economy, predicting that a slowdown will be avoided if inflation continues. moderate and whether consumer spending remains stable.

Basic facts

  • Investors have faced recession warnings since the U.S. economy contracted 1.4% in the first quarter of 2022, but the economic outlook is not as dire as it looks.
  • In fact, most forecasters expect GDP growth of approximately 2-3% for the current quarter, which is a solid rebound from the previous quarter.
  • Many experts warn that the economy is heading for a difficult landing as the Fed tries to fight inflation, but the economy is only slowing rather than contracting – and therefore will avoid a recession, says Jeffrey Roach, chief economist to LPL Financial, which forecasts GDP Growth of 2.6% for the full year.
  • Beyond the ‘anomaly’ in Q1 GDP, the economy has ‘enough momentum’ to offset inflationary pressures thanks to US consumer stability, which is expected to continue to moderate inflation in the second half of the year. , aniya.
  • “The market reversal process is often chaotic and volatile” and negative sentiment is “exaggerated,” said Mark Hackett, head of investment research at Nationwide, who argues that most economic data reflects still on a “web of bottom line,” corporate income, consumer. spending and fund flow remain stable.
  • The ideal scenario for the markets is a soft landing, i.e., the Fed managing to control inflation without hurting economic growth, as in 1994, when the central bank raised rates seven times in for 13 months, but avoided a recession, said last week in Forbes Sam Stovall, head of investment strategy at CFRA Research.

The context

The U.S. economy grew 5.7% in 2021 after contracting 3.4% in 2020, when pandemic lockdowns in March led to a brief recession. Since then, the stocks have had one of the worst starts in the year on record, as rising interest rates, rising inflation and the Russia-Ukraine battle have shaken markets and investor confidence. The Dow Jones lost nearly 1% last week, its ninth -week decline in the past ten, while the S&P 500 and Nasdaq both lost more than 1% for their eighth in nine negative weeks. Despite encouraging manufacturing and employment data last week, investors were selling stocks in the news, whose good news is ‘re -considered bad news’ because of the potential Reserve implications. federal government, ”Mark Hackett said.“ This situation is complicated by the dramatic change in investor behavior from a ‘buy the downside’ mentality last year to a ‘sell the upside’ approach. this year.

What to watch out for

“The growing threat of a global recession has raised serious concerns about the sustainability of the company’s earnings,” according to a recent note from State Street Global Advisors chief investment strategist Michael Arone. Additionally, shocks in global supply are “showing little sign of easing,” which could put “further downward pressure on the company’s earnings.”

Translated article from Forbes US-Author: Sergei Klebnikov

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