Wall Street has gone from worrying about a recession for more than a year to thinking it might not happen. In recent days, some leading voices have expressed the sentiment that even with rising interest rates, weakening consumers and significantly tighter credit conditions, the U.S. could be in for a recession. “It takes a lot of guts to bet against the U.S. economy,” Morgan Stanley CEO James Gorman told CNBC’s Leslie Packer during a live “Squawk on the Street” interview that aired Tuesday. “Bank balance sheets are strong, personal balance sheets are strong. We’re nearing the end of the rate hike period. Earnings have generally been a little more positive.” At this point, the outgoing executive said, it doesn’t matter much if the U.S. suffers a technological recession. “What does it matter if you have a deep recession that reverses unemployment, and that’s not happening,” he said. The sentiment of “no recession” seems to be spreading. Goldman Sachs has cut its recession odds to 20%, up from 35% at one point, on the belief that the storm clouds over the country’s economy are starting to break. This comes even though the yield curve, a key indicator for a recession, remains deeply inverted. “In early March, we highlighted the risk that economic growth could improve in 2023 due to tightening of monetary and fiscal policy, strong growth in consumer incomes, and possible lower levels in the housing and manufacturing sectors”. “While the spring bank failure appears to reduce the odds of this outcome, our review of official and alternative data suggests that this growth recovery may have occurred anyway,” he added. “If so, stronger growth to start the third quarter would help offset the growing drag from lower bank lending, which has stagnated in recent weeks.” To be sure, Goldman isn’t expecting gangbusters growth — the firm sees GDP growing at a 1.1 percent annual pace in the second half of the year — but there are enough signs to be surprised. Here comes, as the title of Hill’s note states: “Is Growth Back?” That sentiment has been fueled by a sharp rise in domestic demand, which gained 2.6 percent annually in the second quarter. The firm also noted signs that manufacturing, which has been contracting for months, is finally coming down. Hill also noted that home sales are “no longer collapsing” but are slowing, giving some hope for this sector of the economy. While Tuesday’s retail sales report was disappointing, with a 0.2% monthly gain falling below the 0.5% consensus estimate, most other data has been good. In fact, the Citi Economic Surprise Index, which gauges actual readings against expectations, is near its highest level since mid-March 2021. Investors are still expecting the Federal Reserve to raise benchmark interest rates when it meets next week. But Gorman suggested this could be the last addition. Chicago Fed President Austin Golsby is among those who believe the economy can avoid a recession despite a 5 percentage point rate hike starting in March 2022. In a recent CNBC interview, Goolsbee spoke of a “golden path” in which the central bank is “going to succeed. [bringing down inflation] And to do so without a recession would be a victory,” Wall Street professionals are taking keen notice. Bank of America’s Global Fund Manager Survey found a shift in those expecting an economic downturn for July. While 48% still see a global recession by the end of the first quarter of 2024, up from 19% in June. 68%, compared to only 21% of those who see a hard landing.
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Source by [CNBC News]
