Federal Reserve: Wall Street Week Ahead: Recession? To land softly? Inflationary recession? Investors assess the strength of the economy

With a pitiful first half for the stock market now in the history books, investors are assessing whether the US economy can survive a significant recession as federal Reserve Raises rates to fight the worst inflation in decades.

The answer to this question has a direct bearing on the markets. Strategists say an economic slowdown coupled with weak corporate earnings could reduce the S&P 500 by at least 10%, undoing losses that have already pushed the benchmark index down 18% year-over-year.

Conversely, according to some analysts’ price targets, in a scenario that includes tangible profit growth and moderating inflation, the stock could bounce back around where they started the year.

For now, “investors are speculating that we are seeing a recession,” said Lindsey Bell, chief market and currency strategist at Ally. “The big question is, how deep is this recession going to be?”

Cases of an impending economic downturn took a hit after a hit on Friday Labour Department The report showed that employers hired far more workers in June than expected, leading to irrigated Ammunition to deliver another 75 basis-point interest rate hike this month.

“The June employment report indicates that the economy is neither on the verge of recession – already very low – nor in an overheated state,” Oxford Economics said in a note.

It predicted more volatility in the market “amidst speculation over what the Fed will do.”

More important information on the economy’s course is expected later this month, as second-quarter earnings reports flood the next few weeks and investors analyze fresh data, including Wednesday’s consumer prices report for June. also includes.

Although the Fed has said it believes in achieving a so-called soft landing by easing inflation without upsetting the economy, some investors believe this year’s sharp stock decline suggests an economic slowdown. A degree is already baked into property prices.

The S&P 500, for example, has fallen 23.6% from its January record high this year, compared with the 24% average decline the index has recorded in previous recessions, indicating it “reflected at least some of the challenging environment.” Happens in stock prices,” Keith Lerner, co-chief investment officer at Truist Advisory Services, said in a report.

A recession is officially called a recession, declared by the National Bureau of Economic Research when there is “a significant decline in economic activity that extends across the economy and lasts for more than a few months.”

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Forecasts for how rocky the economy could become vary.

A note outlining the various economic scenarios from UBS Global Wealth Management said the S&P 500 could fall to 3,300 — about 31% from January’s high — if the economic downturn causes a sharp drop in corporate earnings, as well as in the case of “stagflation,” which usually involves a cocktail. Is. Persistent high inflation combined with slow growth.

Analysts at the bank gave a 30% chance for a “bearish” scenario, and pegged the possibility of a deadlock at 20%.

A “soft landing” scenario is their most likely outcome, and would involve the S&P 500 ending the year at 3,900 — exactly where it closed Friday.

Such a scenario, which is assigned a 40% weighting by UBS, depends on investors believing that inflation is under control and earnings can remain resilient despite tough financial conditions, he said.

Strategists at BofA Global Research in a recent note underscoring the “increasing potential for a stagflationary environment” recommended investors to combine sectors of the stock market that would benefit from inflation, such as energy, with defensive sectors such as health care.

Wells Fargo Investment Institute Meanwhile, strategists earlier this week called for a “moderate US recession” and lowered their year-end S&P 500 target to the 3,800-4,000 range.

Some investors take a more optimistic view of the economy and believe the stock could move above current levels.

Citi’s strategists weighted the “soft landing” scenario at 55%, although they also saw a 40% chance of a mild downturn and a 5% chance of a severe recession. His year-end S&P target is 4,200.

John Stoltzfuss, chief investment strategist at Oppenheimer Asset Management, this week lowered his S&P 500 price target to 4,800 from the 5,330 he started in December — with the new level still up 23% from where the index closed on Friday.

He expects consumer demand, business investment and government spending to support growth.

“It’s a resilient economy,” Stoltzfus said.