The likelihood of a U.S. recession is dwindling, top economists are now predicting.
“We are cutting our probability that a US recession will start in the next 12 months further from 25% to 20%," Goldman Sachs chief economist Jan Hatzius wrote in a Monday report. Meanwhile, traders are optimistic that a 7% drop in S&P 500 second quarter earnings compared to one year ago now represents the floor, with figures expected to improve down the road.
We’ve curated insights from economists and analysts about why they think a recession is less likely, and what that means for the future of the stock market.
- It is now harder to argue for more interest rate increases, Morgan Stanley CEO James Gorman told shareholders on Tuesdays, adding that he also believes a recession is less likely. But Gorman also warned investors that he did not predict interest rates to be cut this year.
- Excitement in artificial intelligence has rallied markets. Experts told CNN that AI is driving investment in tech sectors, including semiconductors, memory, and cloud storage, with some cautiously comparing it to the internet/dot.com bubble of the late 1990s. That means that investors need to see AI expand into other sectors too to avoid the bubble bursting, NPR reports.
- Consumer spending is up, and that could be, in part, thanks to Swifties. Areas of the country are still struggling to recover their tourism industry, but the Federal Reserve’s latest Beige Book notes that hotel revenue in cities like Philadelphia have seen surges due to an influx of visitors for Taylor Swift concerts. The Common Sense Institute estimates her U.S. Eras tour could generate $4.6 billion in total consumer spending, larger than the GDP of 35 countries.
- However, “focusing on short windows of stock market performance tells us little about where the economy or the stock market is headed in the second half of the year,” argued analyst Dan Irvine for Forbes. Given that interest rates takes 12 to 18 months to filter through the economy, he believes a “delayed recession” shouldn’t come as a shock.