Analysts have conflicting viewpoints on what's ahead for the U.S. economy and markets, with some warning of an impending recession, while others suggesting that a soft landing is possible. Meanwhile, one analyst is pointing out that bear markets have never ended before the start of a recession.
What Happened: According to Ed Clissold, Chief U.S. strategist at Ned Davis Research, the U.S. economy is likely not yet in a recession, which would mean that the market has not reached its bear market bottom.
Many conflicting prophecies on economy and markets. A on how they could fit:
— Ed Clissold (@edclissold) February 21, 2023
A bear market has never ended before the start of a recession. Most economists say US is not in recession but it's likely so logical conclusion is lows are not in place. Makes sense. @NDR_RESEARCH 1/9 pic.twitter.com/tOvbuIGdm4
However, as Federal Reserve chair Jerome Powell has said many times, the Fed will continue quantitative tightening measures until the central bank gets inflation in check. Powell’s indication suggests that the bear market could continue well into 2024, as bear markets typically end a median of 14 months after the last hike, Clissold said, and the Fed is expected to hike again on March 22.
On the other hand, the chief strategist said the stock market started pricing in the Fed and economic cycles earlier than usual.
To Clissold’s point, St. Louis Fed President James Bullard on Wednesday said he thinks the markets overpriced the odds for a recession.
"I think markets have overpriced a recession in the second half of 2022 and overpriced a recession in the first half of 2023 and maybe they are overpricing the chances of a recession in the second half of 2023," Bullard said in a Wednesday interview on CNBC.
This bear market started 2.3 months before the first hike, according to Clissold, if the recession is pushed to late 2023 or 2024, there is no precedent for staying in a bear market that long.
The market was even further ahead of the economy. Bears start a median of 6 months before recessions. Longest is 17M (1956 & 1978). Recent data imply a recession is not imminent. If recession is pushed to late 2023 or 2024 there is no precedent for staying in a bear that long 4/9 pic.twitter.com/8lkkRik1hu
— Ed Clissold (@edclissold) February 21, 2023
Further, Clissold said a non-recession bear market in 2022 would fit with the typical cycle, as the U.S. has averaged two bear markets for every recession in the past 60 years.
As the fear of an imminent recession fades, the strategist explained that the market enters what's known as a post-echo bull market until a recession finally occurs. He acknowledged that this time the post-echo bull market may be shorter than average.
The tricky part this cycle is the expansion could be shorter than normal, so a post-echo bull could be far less than the 3yr avg.
— Ed Clissold (@edclissold) February 21, 2023
A (hopefully) interesting thought process, but at the end of the day, we focus on indicators. They lean bullish for now. 8/9 pic.twitter.com/cVfLXTxWrM
Finally, he explained that once a recession happens, the post-recession bull market is the most powerful part of the cycle, as it coincides with economic growth. An economic downturn also leads to fears of a double-dip recession, Clissold noted, but that has only happened once in the past 60 years.
Read next: FOMC Minutes: What To Look For When Details From The Latest Fed Meeting Drop Wednesday
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