Popular Articles
Today Week Month Year


Calm before the storm: Financial experts warn current market calm is a sign of impending recession
By Cassie B. // Jun 13, 2023

The recent resurgence in the stock market following climbing interest rates and high-profile bank failures is being interpreted by some financial experts as a sign that a recession could be just around the corner.

JPMorgan Asset Management Global Head of Fixed Income Bob Michele said that today’s economic climate calls to mind the lull seen in the 2008 financial crisis. Michele, who manages more than $700 billion worth of assets for JPMorgan, thinks the current climate is deceptive.

In an interview, he said: “This does remind me an awful lot of that March-to-June period in 2008.”

In other words, the coming months could well prove to be the calm before the storm.

In past rate hike cycles, there has been a pattern of recessions starting 13 months, on average, following the final rate increase by the Fed. Their most recent move occurred in May, and the clock is already ticking. Michele said that during the period right after the central bank stops raising rates, “you’re not in a recession; it looks like a soft landing” given that the economy continues to grow. However, he did not try to downplay what is likely in store.

“But it would be a miracle if this ended without recession,” he noted.

Michele believes the economy could enter into a recession before the close of the year. Although it may be delayed slightly as Covid stimulus funds continue to have some effect, there is no question where we’re headed.

“I’m highly confident that we’re going to be in a recession a year from now,” he added.

One reason he feels confident making this prediction is that the Federal Reserve’s actions in the last 15 months have been their most aggressive rate increases in the past four decades. The Fed is also using quantitative tightening, and Michele says we are currently seeing moves that are normally only seen during or just before recessions. He also cited growing unemployment, dropping commodity values, an inverted yield curve and tightening credit as further signs that an economic slowdown is underway.

Recession could hit certain groups especially hard

While a recession will affect everybody, he thinks commercial real estate, junk-rated commercial borrowers and regional banks will be the hardest hit.

When it comes to commercial real estate, he points to the high number of unoccupied buildings in many metro areas as property owners grapple with high interest rates and default on their loans.

Meanwhile, junk-rated companies that have benefited in the past from low borrowing costs will have a hard time coming to terms with the new funding environment, and those looking for refinances for their floating-rate loans could well end up in trouble. He thinks many will see rates double or even triple, prompting restructuring and defaults.

For regional banks, investment losses related to higher interest rates, along with pressure due to reliance on governmental programs for meeting deposit outflows, will create a lot of pressure. Michele thinks the recent problems in this industry have not been solved; instead, they have only been stabilized thanks to help from the government.

Jeremy Siegel, a retired finance professor for the University of Pennsylvania’s Wharton School and financial commentator, also expects a recession, although he believes it will be shallow, particularly in light of pressure in the political season to avoid a deep recession.

Germany recently fell into a recession as inflation took its toll on Europe’s largest economy, with higher prices affecting household spending on everything from furniture and clothes to groceries. The Ukraine conflict’s effect on Russian gas supplies also contributed to the situation. The inflation rate in Germany was 7.2 percent in April.

Sources for this article include:

CNBC.com

Markets.BusinessInsider.com

BBC.com



Take Action:
Support NewsTarget by linking to this article from your website.
Permalink to this article:
Copy
Embed article link:
Copy
Reprinting this article:
Non-commercial use is permitted with credit to NewsTarget.com (including a clickable link).
Please contact us for more information.
Free Email Alerts
Get independent news alerts on natural cures, food lab tests, cannabis medicine, science, robotics, drones, privacy and more.

NewsTarget.com © 2022 All Rights Reserved. All content posted on this site is commentary or opinion and is protected under Free Speech. NewsTarget.com is not responsible for content written by contributing authors. The information on this site is provided for educational and entertainment purposes only. It is not intended as a substitute for professional advice of any kind. NewsTarget.com assumes no responsibility for the use or misuse of this material. Your use of this website indicates your agreement to these terms and those published on this site. All trademarks, registered trademarks and servicemarks mentioned on this site are the property of their respective owners.

This site uses cookies
News Target uses cookies to improve your experience on our site. By using this site, you agree to our privacy policy.
Learn More
Close
Get 100% real, uncensored news delivered straight to your inbox
You can unsubscribe at any time. Your email privacy is completely protected.