Is a Potential Recession in the US priced in?
As we look ahead to 2023, the economic landscape is clouded by concerns around inflation, interest rates, and the possibility of a recession. Despite robust economic performance, inflation has remained stubbornly high, making it difficult to control. Consequently, central banks may need to keep interest rates elevated for an extended period of time. Adding to these challenges, there are also worries about potential banking stress that could negatively impact lending and pose systemic risks to the broader financial system. All of these factors have contributed to market uncertainty, but we believe that economic growth is likely to decelerate, with significant downside risks due to the possibility of restrictive monetary policy and financial system stress.
Moreover, the recent yield curve inversion in the US, with long-term government bond yields lower than their short-term counterparts, has been the most pronounced in four decades. This is a reliable historical indicator of an impending recession, with every US recession since 1950 having been preceded by a yield curve inversion. This time, the causes could include the Federal Reserve's decision to raise short-term interest rates, the ongoing trade war between the US and China, and a slowdown in global economic growth. However, it is impossible to predict with certainty whether or when a recession will occur.
A potential recession in the US could have adverse consequences, such as rising unemployment, lower consumer spending, reduced investment, and lower sales and earnings. While a recession could have a negative impact on the S&P 500 index, the extent of this impact would depend on a range of factors, including the severity and duration of the recession, government policies, and investor sentiment.
It's important to note that market movements are unpredictable and influenced by a range of factors, including macroeconomic events, earnings reports from individual companies, and geopolitical developments. Nevertheless, we recommend that investors take steps to prepare for a potential recession by diversifying their portfolios and investing in defensive strategies to hedge against this potential scenario.
Bearish Shark Note | Product Snapshot
For informational purposes only. Not investment advice.
As we look ahead to 2023, the economic landscape is clouded by concerns around inflation, interest rates, and the possibility of a recession. Despite robust economic performance, inflation has remained stubbornly high, making it difficult to control. Consequently, central banks may need to keep interest rates elevated for an extended period of time. Adding to these challenges, there are also worries about potential banking stress that could negatively impact lending and pose systemic risks to the broader financial system. All of these factors have contributed to market uncertainty, but we believe that economic growth is likely to decelerate, with significant downside risks due to the possibility of restrictive monetary policy and financial system stress.
Moreover, the recent yield curve inversion in the US, with long-term government bond yields lower than their short-term counterparts, has been the most pronounced in four decades. This is a reliable historical indicator of an impending recession, with every US recession since 1950 having been preceded by a yield curve inversion. This time, the causes could include the Federal Reserve's decision to raise short-term interest rates, the ongoing trade war between the US and China, and a slowdown in global economic growth. However, it is impossible to predict with certainty whether or when a recession will occur.
A potential recession in the US could have adverse consequences, such as rising unemployment, lower consumer spending, reduced investment, and lower sales and earnings. While a recession could have a negative impact on the S&P 500 index, the extent of this impact would depend on a range of factors, including the severity and duration of the recession, government policies, and investor sentiment.
It's important to note that market movements are unpredictable and influenced by a range of factors, including macroeconomic events, earnings reports from individual companies, and geopolitical developments. Nevertheless, we recommend that investors take steps to prepare for a potential recession by diversifying their portfolios and investing in defensive strategies to hedge against this potential scenario.
Bearish Shark Note | Product Snapshot
For informational purposes only. Not investment advice.