Is a recession in the cards? Market watchers are divided on if, and when, a recession will hit the United States. slow-down. The S&P 500 slid 5.8% last week for its biggest weekly loss since March 2020, while the blue chip Dow Jones Industrial Average fell below 30,000 for the first time since January 2021, losing 4 .8% for the period. The tech-heavy Nasdaq Composite fell 4.8%. Warnings of an impending recession are getting louder. A slew of investment banks – including Goldman Sachs, Morgan Stanley and Deutsche Bank – now believe a recession is becoming a more likely scenario as the Fed hikes rates and economic growth slows. But UBS is sticking to its baseline forecast of “no recession”. “We don’t see a US or global recession in 2022 or 2023 in our base case scenario, but it’s clear that the risks of a hard landing are increasing. Even if the economy slips into a recession, however, it should be little deep given the strength of consumer and bank balance sheets,” UBS strategists, led by Bhanu Baweja, said in a June 21 research note. sector around 17 U.S. recessions over the past 100 years for clues as to what might happen in a recession Admittedly, history is not necessarily a reliable predictor of future performance, but it could give investors an idea of what to expect as recession risks increase What happens in a “shallow recession” Of the 17 recessions studied by UBS, 10 were considered “deep recessions” es,” when gross domestic product in the United States fell more than 3% from peak to trough. The other seven were classified as “shallow recessions” – defined as a drop in GDP of less than 3%. UBS noted that shallow recessions are associated with central bank rate hikes, usually in response to high inflation. The bank’s data showed that a shallow recession typically lasts 12 months, with returns declining an average of 11% over the period. He noted that sell-offs typically begin eight months before a recession begins, bottoming out within four months of the onset. This implies that the market sell-off is concentrated in around the first third, with a recovery during the last two-thirds of the recession, Baweja noted. On a sector basis, the stock price returns of financials, industrials and consumer discretionary stocks are notable for being the “most sensitive” to the depth of the recession – the outlook for which is the most improved if one can be sure. that a deep recession would be avoided, according to UBS. “In fact, in previous shallow recessions, financials and consumer discretionary stocks have slightly outperformed the market,” Baweja added. Data from UBS also showed that, on average, the US inflation rate and the federal funds rate were 6.6% and 8.1%, respectively, before a shallow recession. After the Fed’s 75 basis point hike last week, the Fed’s benchmark funds rate is now in a range of 1.5% to 1.75%. The US consumer price index rose 8.6% in May from a year ago, the biggest rise since December 1981. Core inflation excluding food and energy rose 6% .
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