What markets are saying about when to expect a recession

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Since months, economists, investors, and the Federal Reserve have warned that a possible recession may occur later this year. A growing number of experts, however, believe that a recession might not occur until the beginning of next year.

These are some recent calls.

JPMorgan Chase's economists stated in a recent note that a global recession could occur in 2024.

It's not new to delay recession predictions. Investors and economics predicted last year that the US would enter a depression in early 2023 after the Fed began its aggressive campaign of interest rate hikes to combat inflation. The case for a recession in 2023 has become less plausible as the US economy has proven to be more resilient than anticipated and has so far avoided recession. As a result, bets have started to shift further out.

David Grecsek is the managing director of investment strategy and research for wealth management firm Aspiriant. You have to admit that, boy, we are kicking the recession can down the road. Doesn't that just mean we won't have a depression?

It's hard to predict when a recession will start because the Fed's rate increases take time to affect the economy.

Fed Chair Jerome Powell said to Congress earlier this week that it will take "a year and a half" for the Fed's interest rate increases to reach the entire economy. The Fed has been increasing rates for over a full year, which means the rate increases could be fully implemented soon.

Grecsek says that if the economy continues to be strong, it is possible a recession will not occur.

He said that 'we are still far away from this at this time'.

What do the markets say about recession odds? What you see depends on where you are.

Stock market has not shown any signs of a possible economic downturn this year, despite the fact that it entered bull market territory only a few short weeks ago.

In recent weeks, small-cap stocks have also joined the rally. They are considered domestic economic bellwethers due to their exposure to US financial companies, and also because they rely on US revenue. The Russell 2000 index which tracks small-cap stocks is up 6.8% this year.

The market breadth has widened, even though mega-cap stocks are still dominating the rally.

A positive sign is that the consumer discretionary sector of the S&P 500 index has risen over 30% this year. This is backed up by solid economic data, which suggests Americans continue to spend.

According to the Investment Company Institute, money-market funds experienced their first outflows since April for the week ending June 14. The next week, the outflows continued.

Brian Mulberry is the client portfolio manager of Zacks Investment Management. He says that this is another indication that Wall Street has begun to feel more optimistic about the economy.

Bond market data tells us a different tale. The New York Federal Reserve's model of recession probability calculates the likelihood that the US economy will be in a recession within the next 12 month by tracking the difference between the yields on 3-month and 10-year Treasury bonds. Model shows that there is a 71% chance the economy will enter a recession in May 2024. This is the highest reading since 1983.

According to the Federal Reserve Bank of San Francisco, both the two-year and ten-year Treasury yield curves remain inverted. This phenomenon has been present before all 10 US recessions that have occurred since 1955.

What does this all mean? Tim Courtney is the chief investment officer of Exencial Wealth Advisors. He says that there's no consensus among Wall Street investors about the future of the economy.

Courtney says that the past few years were unique in terms of the markets and economy because of the pandemic and federal stimulus spending, as well as the Fed's aggressive rate hikes. Investors are unsure of what lies ahead due to mixed data and a cloudy view of the health of the economy.

He said, "There is no precedent in history that we could point to." I don't believe the markets know what to expect.

Climate event El Nino threatens US Economic Growth

El Nino is a climate phenomenon that describes the phenomenon of warm surface waters in the Pacific Ocean's central and eastern regions. This year, El Nino could have a greater impact than the weather.

Scientists from the US National Oceanic and Atmospheric Administration confirmed this month that El Nino is a strong event this time.

Samantha Delouya, my colleague, says that this could be a concern for the growth of the US economy.

El Nino may cause abnormal weather patterns to occur even outside the Pacific Ocean, and can lead to natural disasters like flooding, wildfires, and hurricanes.

El Nino is a serious threat to US economic growth. Americans may have to pay more for food than they have done in the last two years.

Inclement weather could cause flight cancellations and delays to increase in the airline industry. This is despite a boom in travel over the last couple of years.