JPMorgan Stays Bearish As Goldman Again Cuts US Recession Odds
Goldman on Monday cut the subjective odds they assign to a US recession. Again.
The chances of a US downturn occurring over the next 12 months are now 20%, according to Jan Hatzius. It was the second time in two months he reduced the probability of a recession.
In early June, Hatzius cited the abatement of downside risks from the regional banking turmoil in cutting the bank's "judgmental" odds. Fast forward six weeks and he pointed to "recent data," which together "reinforce" Goldman's faith i
Negative macro only matters to the extent it leads to negative earnings or falling valuations, within the investment horizon of the investor in question. 2Q earnings/guides have yet to be writ, but rising 2023 estimates and benign guides and reports so far hint that earnings season may be “okay”. Valuations are stretched but with the 10 year not breaking over 400 bp there isn’t an obvious negative catalyst. Ominous macro and positioning indicators for 3Q earnings season are not an imminent problem. Coming with the rather general confusion over exactly what all these conflicting macro signals mean, and neutral market positioning with micro (security level) bets feels safer than highly convicted directional market bets.
Good comment, and I agree with you, @JohnLiu, 100%. I’m not without optimism and patience for Q3 and Q4 to show more positive signs. This is a most modest downturn. I reckon we just had too much money sloshing around in the economy. I’m not at all surprised that the US economy is holding up well.
The pandemic was disorienting. We had pessimism after the pandemic, and we worried and had concern afterwards. Trump’s management of the economy increased the volume of cash with a tax cut for the wealthiest folks. Biden entered office with a massive stimulus action. The wealthy in the US and our markets were swimming in an ocean of money. In addition, only a small proportion of the US working population is lacking in work.
And don’t get me wrong. I do not promote Trump’s actions when he was in office. If anything, his (and Paul Ryan’s) tax cut was irresponsible. But as it turns out, that extra cash in the economy served a purpose. My fingers are crossed that we’ll see broader improvements in 2024. And I don’t mind the idea of looking forward to a wealth tax in 2025. If the market and my holdings are still doing well, I will gladly pay it.
I saw today that Goldman actually spake the “this time is different” line that usually seals investors’ doom. I’m long believed that inverted yield curves are not (merely) an indicator of recession, but a (contributing) cause of recession, via the bank credit dynamics with which we are now all familiar. Many things seem not evidently “different”: withdrawal of fiscal stimulus, draining of monetary stimulus (liquidity), developing recession in the world’s #2 economy, shaky debt piles both public and private, etc. One major thing that is “different” is the US labor market, where the pandemic’s societal effects took as much as 8MM from a 165MM labor force, leading to the tightest labor market since, I’d guess, WW2. Another “different”, in degree anyway, is the sheer scale of stimulus in the 2020-2022 period. I don’t have strong conviction whether things are, or are not, different this time, but remain neutrally positioned rather than aggressively positioned.