All the talk is about an economic downturn.
KENA BETANCUR | Getty Images Buying a home, a car, and other big-ticket items are more expensive now that the Federal Reserve has raised interest rates due to inflation. Consumers are also feeling the pain of the stock and bond markets.
A growing number of people think that the economy may be in a slump already, and that a recession is on the way. A recession is defined as back-to-back quarters of negative GDP. The world will know the truth when the GDP numbers are announced in August.
Many of the largest firms on Wall Street don't believe that a recession is going to happen. A majority of the shops that shared their mid-year outlooks for the economy with Insider believe there's only a 50% chance of a recession.
Some firms have a full view of the economy. Ameriprise Financial, Citigroup, Goldman Sachs, and Morgan Stanley don't want the economy to contract.
Bank of America and Wells Fargo have called for a recession, but other banks think it's likely.
The economic outlooks that Insider gathered from those 12 firms were grouped according to their optimism or pessimism.
Brian Belski said in an interview that the chance of a recession is "moot".
Unemployment is historically low, consumers are still spending and going on vacations, and Belski has a hunch that inflation isn't as bad as the consensus thinks.
Supply-demand mismatches caused by the Russia-Ukraine war and supply chain issues have caused price growth to surge. Inflation will begin to roll over in the coming months, according to Belski.
Although consumer sentiment readings have tanked recently, Belski believes that record-high gas prices will fade. He said that layoffs have mostly been in the tech sector.
Jonathan Golub is also in the same camp. The economy is slowing after running hot, but that isn't recessionary.
Golub wrote that "recessions are most accurately characterized by a meltdown in employment and an inability of consumers and businesses to meet their financial obligations." We are currently experiencing a meaningful slowdown in economic growth, but neither of the above conditions are present.
Inflation-adjusted GDP growth is expected to be 2.5% and 1.9% in the years 2022, and 2023, according to the note. Golub trimmed his price target for the S&P 500 from 4,900 to 4,300 due to lower valuations and weaker earnings expectations.
Although there are signs of weakness in the economy, a recession isn't imminent according to Jamie Dimon.
The economists at JP Morgan agree with that. According to a note written by the firm's global markets strategy chief and global research co-head, the likelihood of a recession increased meaningfully.
Global growth is expected to rise from 1.3% in the first half of the year to 3.1% in the back half of the year, according to a survey by JP Morgan.
In the second half of the year, inflation is expected to fall from an annual rate of 4.2% in the first half to 4.2%. The drop would come from a diplomatic solution to the Russia-Ukraine war, which would allow central bankers to change their monetary policy.
Russia's invasion of Ukraine is one of the reasons why John Stoltzfus was caught off guard by the stock market's decline. Despite the nation's tight restrictions, a Covid-19 outbreak in China did not help. Inflation has remained historically high due to supply-chain disruptions.
While the US economy isn't doing as well as he thought it would, he thinks there are more reasons to be optimistic.
Stoltzfus wrote in an email on July 7 that he believed the US economy remained on solid footing. Consumer demand, business investment, and government spending should support US growth.
In an interview with Insider, Stoltzfus said that he sees more turbulence for the US economy than the S&P 500 price target suggests. The path forward is dependent on how the Fed sets monetary policy and how the economy responds to it.
"We don't believe we'll get a soft landing," Stoltzfus said. It seems like it's a bumpy landing.
According to Goldman, the odds of an economic downturn in the US were about 30% at the beginning of the month.
David Kostin, the firm's chief US equity strategist, wrote in a note published earlier this month that inflation is nearly double the 4.8% mark that the firm's economists thought it would reach.
Many of his peers think that higher borrowing costs will cripple the economy, but his counter argument is that this year has shown that there are no certainties.
This year has been almost impossible to predict, according to the note.
Several firms are most comfortable with the fact that a recession has a 50% chance of happening.
Ameriprise Financial is one of those companies. There are reasons to be positive in the firm's mid-year outlook, according to Russell Price, the firm's chief economist.
Price and his colleagues thought price growth had peaked in March, but the fact that it accelerated again in May and June was a big red flag. The cost of oil and gas will likely rise even though prices for used cars and commodities have fallen.
Anthony Saglimbene said that the adverse scenario that they laid out was similar to the base case.
Scott Chronert, a top US equity strategist at Citigroup, told Insider that the firm believes there is a 50% chance of a global recession. The depth and duration of a downturn are difficult to predict and there is no consensus on when it would happen.
The fact that profit margins hit an all-time high last year is one of the reasons for optimism. He thinks that Q2 earnings results will meet expectations, but he is watching reports for signs of weakness.
According to Chronert, the US central bank could be willing to go into a recession in order to snuff out inflation. Inflation is expected to fall to 4% to 3% from above 9%, but still be above the Federal Reserve's 2% target.
Morgan Stanley didn't make a definitive call on the economy during what the firm's team of economists called the most chaotic, hard-to-predict macroeconomic time in decades. The economists at the firm warned that the path forward is "rife with risk" despite the firm's base case that US GDP will rise 2.9% in 2022.
Morgan Stanley's CIO and strategy chief, Mike Wilson, has a bear case for US stocks in the event of a recession. Wilson believes that margin weakness is caused by inflation for input goods and workers and that the Federal Reserve is a cause for concern.
Even though it hasn't made a recession call, the view of the economy by the private bank is not good. Economic growth may be able to continue, though the firm thinks it will get slashed in half as central banks raise interest rates in response to inflation.
"The combination of a worsening growth outlook and tighter financial conditions have depressed investors' sentiment to a point rarely seen outside of recessions," wrote Jean- Damian Marie and Andre Portelli, the co-heads of investment atBarclays Private Bank.
According to the firm's chief market strategist, a "mild" recession is possible in the US and parts of Europe since the economy has deteriorated.
Inflation appears to be peaking, which is good news for the economy. In the next few months, he thinks price growth will moderate. It is possible that markets have seen peak levels of hawkishness from central banks.
During her firm's mid-year outlook webinars in June, Solita said that the chance of an economic downturn has increased significantly. She doesn't think that the economy is dead.
The US economy is on the path to a recession, but it isn't inevitable, according to the speaker. There is still a path to an alternative scenario where it could end up with a soft landing.
If the Federal Reserve's rapid interest rate increases prove to be effective in cooling the US economy and bringing down inflation, then a continued expansion is possible.
I think we will be in a recession if the Fed knows the path it laid out, and hikes exactly the way they have already done. There's still a chance that economic data over the next several months will show a very quick loss in the economy. They may be able to stop at that point and avoid a recession.
Themis Themistocleous, head of the chief investment office for Europe, the Middle East, and Africa, said that if there is a recession it will be shallow. He said investors should be prepared for more pain if it is a deeper downturn.
Bank of America made an official recession call. The economists at the firm wrote in a July 13 note that their updated forecast is for a slight contraction of GDP in the second half of the year.
The firm had a 40% chance of a recession less than a month ago.
"Our previous baseline outlook for the US economy featured a growth recession (e.g., output growth remaining positive, but below our estimate of potential), but a number of forces have coincided to slow economic momentum more rapidly than we previously expected."
The forces that Harris and his team cited when making their call included a drop in services spending based on Bank of America credit and debit card data, as well as the continued threats of sky-high inflation, tight financial conditions, and slowing home sales.
Bank of America thinks the unemployment rate will go up from 3.6% to 4.6%. Harris said that the Federal Reserve has shown a willingness to accept some pain in labor markets as it tries to slow inflation. The work will be done to bring down price growth.
The base case for Wells Fargo is for a short recession that lasts from late 2022. The call was made in mid- May.
"After only two years, we see clear signs that the expansion is in late cycle, thanks to an inflation accretion that we expect to fade more noticeably in 2023," Wells Fargo strategists wrote.
Higher interest rates, lower inflation-adjusted incomes, and supply chain issues are some of the signs. In Wells Fargo's view, the risks undermine support from solid job growth and erode consumer spending.
According to analysts at Wells Fargo, Europe won't be able to avoid a recession because the global economy is more vulnerable to shocks caused by Russia's invasion of Ukraine.
Wells Fargo expects inflation and monetary policy to ease by late in the 20th century, which it believes will lead to another global economic recovery.
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