The stock market is practically begging for a recession
“If enough people believe it’s time to get their spending under control — and then act on it — that becomes a self-fulfilling prophecy,” Brown said.
Recessions are inevitable, they are part of every economic cycle. Recessions will happen, and no amount of forecasting and forecasting can prevent them.
“The sooner we have the recession, the better,” said Kevin Gordon, senior director of investment research at Charles Schwab.
Although it may seem counterintuitive, advancing the start date of the recession would ultimately be positive for investors, Gordon said. This is because a recession would mean that the turning point in equities is closer than farther away, and the bottom is closer than we think.
Then, investors could move on to the next cycle: the search for hope. Economists liken this to finding green shoots after a forest fire.
“While it might seem economically bullish to assume the recession starts in 2023, it’s actually a bear market, especially if you think the market still needs to price in more downside for earnings,” Gordon said.
A recession in 2023 could give us another six months of bear markets, further hurting the economy. But earlier recession determination means earlier recovery. This means a faster return to risk appetite and an increase in corporate profits. Corporate profits on Wall Street never rose overall when the economy headed into recession.
More importantly, it would mean that inflationary pressures would decline faster and the Fed would be able to end its tightening policy sooner, minimizing economic damage and increasing investment opportunities.
The problem is that the NBER is notoriously slow to announce when we are in a recession. He only announced in June 2020 that the pandemic-induced recession had started in February – and it was faster than usual.
So, unfortunately for Wall Street investors looking for relief, the recession debate will almost certainly continue for months.
Bank of America analysts, meanwhile, predict a “mild recession” will start this year in the United States and ease by 2023.
Recession is never a good thing, but a short, shallow recession is now better than a large, imminent threat in the distance.