About a coin-flip

Given that the economic environment is very uncertain, many companies are more comfortable saying that a

recession

has about a 50% chance of occurring.

One such company is Ameriprise Financial. Russell Price, the company’s chief economist, laid out the reasons to be constructive in his company’s mid-year outlook webinar: Unemployment is historic low, consumers still seem to have plenty of money and the demand for goods is always pent up.

But inflation is a serious threat to his company’s prospects, and the fact that it accelerated again in May and June was a huge wake-up call for Price and his colleagues, who previously thought the price growth had peaked in March. While prices for used cars as well as commodities like lumber and metals have fallen, the cost of oil and gas will likely continue to rise, Price said.

“The downside scenario that we presented – which was a version of stagflation where growth slows, interest rates go up, and inflation lasts a bit longer, which puts pressure on some of those earnings – I think that’s more like the base case,” Anthony Saglimbene, global markets strategist at Ameriprise Financial, said during the webinar.

Citigroup also believes there’s a 50 to 50 chance of a global recession, Scott Chronert, one of the company’s top US equity strategists, said in an interview with Insider. There’s no consensus on when that would happen, Chronert said, adding that the depth and duration of a downturn is also difficult to predict.

On the one hand, strong corporate earnings reports in the fourth quarter of 2021 and the first quarter of 2022 are cause for optimism, Chronert said, as are the fact that profit margins hit an all-time high last year. . He believes second-quarter earnings results will meet expectations, but added that he is monitoring industrial production data and other reports for signs of weakness.

Inflation is the main threat to the economy, as Chronert said the US central bank may be willing to suffer a recession in order to completely stifle runaway price growth. Citi economists expect inflation to ease to around 3% to 4% from over 9% now – that would represent significant progress, but would still be well above the

Federal Reserve

the 2% target.

Morgan Stanley refrained from making a definitive call on the economy during what the company’s team of economists called “the most chaotic and difficult macroeconomic period to predict in decades” in a note. about their prospects. The company’s base-case scenario is still that US GDP will grow 2.9% in 2022, but economists have also warned that the way forward is “fraught with risk”.

Mike Wilson, CIO and chief strategy officer who leads Morgan Stanley’s US equities team, has a bearish case for US equities that goes hand in hand with a recession. Wilson says that stems from weak margins caused by unwavering input and worker inflation, though slowing demand and a hawkish Federal Reserve are also serious concerns.