Pre-market stocks: Why we think we’re in a recession when the data says otherwise

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It seems like you can’t go anywhere these days without hitting your head first with yet another ominous prediction of an impending recession. CEOs, portfolio managers, politicians, news analysts, second and even cousins Cardi B They sound the alarm: Hear! Listen! Economic downturn awaits everyone who dares to enter 2023!

But these predictions contradict a slew of positive economic data we’ve seen: the job market is healthy, wages are growing, Americans are spending, and GDP is strong. Business is good, too: The companies are largely beating revenue forecasts and reporting positive earnings results.

Sure, the Federal Reserve’s system of painful interest rate hikes aimed at taming persistent inflation could calm the economy – as could events in Eastern Europe and China – but the economy has successfully weathered nearly a year of hikes and war in Ukraine with barely a foothold. Mild trauma.

It’s possible that chatter about recession is just that. chat.

What is happening: No one would ever accuse investors of losing their emotions: Emotions run high on trading floors where feelings are as often true as facts, fear and greed. Sometimes can Run the show. On the other hand, economists are a data-driven stoic group. The American economy isn’t Wall Street, and a market downturn isn’t a recession—but sometimes they blend together in the public eye and their boundaries blur.

That seems to be the case: The Fed’s attempts to curb very high inflation are having a major impact on markets – the S&P 500 is down about 18% so far this year But so far there has been little impact on the US economy as a whole.

This week, a number of senior executives warned of an economic downturn in 2023. CEOs from Goldman Sachs, JPMorgan, General Motors, Walmart, United and Union Pacific said they are planning for less profitable times ahead. But much of the uncertainty lurks behind the headlines about “stagnant CEO expectations”.

Rising interest rates and geopolitical chaos point to storm clouds on the horizon: JPMorgan CEO Jamie Dimon points out to CNBC on Tuesday. We simply don’t know.” What is not said is that sunny days are also a possibility.

loop feedback: United Airlines CEO Scott Kirby also told CNBC on Tuesday that “it is likely that we will see a mild recession because of the Fed.” He then went on to say that demand in his industry was higher than ever and United entered the fourth quarter with profit margins near their highest levels ever. Nor does he see any sign of a slowdown on the horizon.

So why does he think a recession is coming? “If I didn’t watch CNBC in the morning,” he said, “the word ‘recession’ wouldn’t be in my vocabulary.” “You can’t see it in our data.”

It’s as if Kirby predicted a recession was imminent because other prominent voices predicted a recession was imminent. And it is possible that we are all caught in a feedback loop that increases unwarranted fear.

Prophecies often come true on their own. If CEOs think a recession is about to hit, they preemptively close the doors—that means less spending and more layoffs, which in turn can trigger an economic downturn.

David Solomon, CEO of Goldman, said on Tuesday that the bank may wind down soon and is being cautious with its finances due to mounting economic uncertainty. Morgan Stanley will reportedly cut its workforce by about 1,600 people, roughly 2% of the total.

Upside: Some parts of Wall Street seem to be avoiding recession fever. A recent study by Goldman Sachs found that the smart money is betting on a soft landing. Money managers have been favoring industrial and commodity stocks that are affected by the economic downturn. Strategists at Goldman have found that stocks that act as a buffer during economic downturns such as consumer staples and utilities have fallen out of favor in investment funds with total assets of nearly $5 trillion.

“The tilt of the present sector is consistent with the easy landing positioning,” they wrote.

Oil prices have fallen to their lowest level since Christmas as concerns about the health of the economy overshadow crude, overshadowing concerns about new restrictions on Russian energy, as reported by my colleague Matt Egan.

Brent crude, the global benchmark, lost nearly 3% on Thursday to around $77.45 a barrel.

The oil sell-off comes after the West hit Russia with new restrictions that, so far at least, do not appear to derail global energy markets.

On Monday, the European Union imposed a ban on seaborne oil imports from Russia, while the West set a ceiling for Russian oil of $60. Both moves are designed to hurt Russia’s ability to finance its war in Ukraine, without hurting consumers by pushing Moscow to cut oil production.

Russian oil is still on the market. “As of now, it looks like Russia is ready to play ball,” said Robert Yawger, vice president of oil futures at Mizuho Securities.

The calm reaction from energy markets is a welcome boon to Americans heading out for long trips this holiday season, as prices at the pump are expected to continue their recent decline.

This week, US oil recorded its lowest level since December 23, 2021, before recovering slightly on Thursday, to trade up 2% at $73.60 a barrel. That sends oil down 43% since it briefly topped $130 a barrel in March amid fears of Russia’s invasion of Ukraine.

The national average price for regular gasoline fell three cents to $3.33 a gallon Thursday, according to AAA. Gas prices fell 14 cents in the past week and 47 cents in one month. The national average is a cent lower than it was a year ago when it averaged $3.34 a gallon.

Britain is bracing for more disruption from strikes approaching the Christmas period, as ambulance drivers and nurses join railway operators and postal workers in the worst strike wave the country has suffered in at least a decade, reports my colleague Hanna Ziadi.

More than 20,000 ambulance workers, including paramedics and call staff, are expected to go on strike on December 21 over a wage dispute, according to data from the trade unions GMB, Unison and Unite.

The strike will involve less than half of ambulance drivers in England, Wales and Northern Ireland, although unions have said they will cover life-threatening emergencies during the strikes. More than 10,000 ambulance workers represented by the GMB union will strike again on December 28.

Strikes have gripped the UK this year, as workers grapple with a cost of living crisis and stagnant wages. Consumer prices rose 11.1% in the year through October, the highest level in 41 years. Once inflation is factored in, average wages fell the most on record earlier this year, and are still falling in the June-September period.

According to The Times, one million British workers are set to strike in December and January. Data from the Office for National Statistics shows Britain has already lost at least 741,000 strike days this year, putting it on track for the worst year of labor disputes in at least a decade.

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