Since the beginning of 2023, there has been widespread anticipation of an impending recession in the United States due to a sharp surge in interest rates, the steepest since the 1980s. However, as we reach the halfway mark of the year, this much-predicted recession has yet to materialize, leading some experts to suggest that the risk may have blown over. The argument is further supported by encouraging economic data, including resilient job-market numbers and cooling inflation.
Despite the doom-and-gloom predictions from Wall Street, the stock market has defied expectations and recorded its best first-half gain since 2019. One factor contributing to this success is the surging investor interest in artificial intelligence.
Prominent economists and market voices, including Seth Carpenter, Morgan Stanley’s chief economist, and Nobel laureate Paul Krugman, remain bullish on the trajectory of the economy. Carpenter emphasizes the strength of the labor market, stating that while there has been a clear slowing, the rate of job gains has been strong, contributing to resilient spending. He believes that as the Federal Reserve eases on rate hikes, a recession is unlikely.
Krugman, echoing Carpenter’s sentiment, highlights the falling inflation and lack of recession signs in the US economic news. He notes the significant addition of four million jobs over the past year and the unemployment rate remaining near a 50-year low. Krugman’s positive outlook on the economy dispels the dire warnings of a recession from the media.
Robert Hoffman, Citi private bank strategist, also weighs in on the topic. He originally anticipated a recession by the end of 2023 but now believes it has been pushed further out, potentially to the end of 2024. Hoffman sees the US mid-cap space as offering compelling valuations, presenting an opportunity in case of recession avoidance or further postponement.
Another supporting voice comes from Bank of America (BoA), which published a research note explaining how the inversion of the yield curve may signal a decline in inflation rather than a deterioration in growth. BoA strategists believe that the US economy will emerge intact as the curve shape reflects expectations for declining inflation and a softer landing rather than elevated recession risk.
Jeremy Siegel, a retired Wharton finance professor, adds to the optimistic outlook. He believes that the stock-market rally can continue for a significant period and that it would take a weak economic report or disappointing earnings to shake the momentum.
Despite the initial fears and predictions of an imminent recession, the US economy has shown resilience and potential for continued growth throughout the first half of 2023. The combination of positive economic data and the confidence of prominent economists and market voices suggests that the anticipated recession may have been averted or postponed. As the year progresses, it will be crucial to monitor economic indicators and expert opinions to gain a clearer understanding of the economy’s future trajectory.
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