BofA: U.S. Could Be in a Recession by March

Date: 11 December 2022 - 21:45

News ID: ۱۱۰۰۳۶

NEW YORK (CNBC) - The U.S. economy could be on the verge of a recession over the next 10-12 weeks, Bank of America has said in a note.
That would put the economy in a contractionary period by March, according to their timeline, and it would line up with consensus among business leaders that a downturn is near. A recent survey from the Conference Board found that 98% of business CEOs expect a recession to occur in 2023, up from a prior reading of 95%.
This potential recession has been called the most telegraphed recession in history because everyone seems to be expecting a decline. And there’s good reason for that thinking, given that interest rates soared in 2022, combined with extreme volatility in commodities markets that helped keep inflation persistent.
Now the recessionary signs are building, according to Bank of America’s Michael Hartnett, who outlined these five signals as reason to believe that a recession is likely by early 2023.
1. The yield curve is the most inverted since October 1981, with the 10-year U.S. Treasury yield currently about 80 basis points below the yield of the 2-year U.S. Treasury note. The yield curve is a reliable leading recession indicator closely followed by investors.
2. Oil is down 40% in six months despite various bullish supply factors, including China reopening its economy, the Russian oil price cap, an empty U.S. Strategic Petroleum Reserve, and OPEC remaining supply constrained. Instead, oil prices falling could signal a potential weakening in demand.
3. Bank stocks are down 10% in just four days. That could signal that investors are expecting a slowdown in economic growth. Bank stocks are often described as a “canary in the coal mine”, and feel the pain of a downturn earlier than stocks in other sectors.
4. ISM manufacturing new orders are down three straight months during the current period of high inventories. Altogether, this serves as a potential signal that businesses are anticipating, or already experiencing, a slowdown in customer orders.
5. The U.S. home sales index is down 37% year-over-year, while home prices in Sweden, New Zealand, Canada, and Sydney, Australia are down 13%, 11%, 10%, and 5%, respectively. Overall, the housing market, both in the U.S. and abroad, is slowing down, and that can have a negative wealth effect and hurt consumer spending.
For investors, the chance of a recession means they should stick to owning high quality investments, according to the note. “Best hedge for both base case and 2023 risk scenario for the moment is Treasuries and boring stocks with strong balance sheets,” Hartnett said.