The market is laser focused on the Fed, but there are other risks investors are not pricing in as a possible recession looms
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Max Adams
Sep 1, 2022, 18:53 IST
The end of August shows the summer gains might have been just a bear market rallyGetty images
Today, we're looking at two calls, one for the economy and one for the stock market. Unfortunately, neither are great.
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Let's get right to it.
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1. Investors should stop obsessing over the Fed and get real about risk to earnings. That's according to Mike Wilson, Morgan Stanley's chief US equities strategist and CIO.
Ultimately, he sees the S&P 500 down 15%-25% in the event of either a soft landing of the economy or a full blown recession in the worst case.
And, as UBS argues, the odds of said recession have increased dramatically this summer.The Swiss bank said in a note to clients this week that macroeconomic data points to a 60% chance the US economy will enter a recession in the next 12 months. That's up from 40% at the beginning of the summer.
Three factors are pointing the bank toward this prediction: macro data, the US treasury yield curve, and credit market data. The good news for now is that the bank's models are not pointing to a full recession.
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"As we have argued before, historically, not all (sharp) slowdowns lead to recession... The US team's model forecast is that the contraction does not morph into a full-blown recession," the bank said.
August ended with a whimper, with the summer rally from June lows fizzling out in a string of four consecutive losing sessions, giving some weight to Wilson's prediction that the final stretch of 2022 could be a rough ride for traders.
Is the stock market headed for a new bottom before the year is out?Email madams@insider.com
In other news:
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2. US stock futures fall early Thursday, as the yen touched a 24-year low overnight and bitcoin slipped below the $20,000 level. Here are the latest market moves.
3. On the docket: Lululemon, Broadcom, and Campbell Soup are all reporting.
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Curated by Max Adams in New York. (Feedback or tips? Email madams@insider.com)
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