Two-thirds of respondents in the latest Market Pulse survey of 410 major investors expect the U.S. economy to slip into a recession before 2025.
A fifth of those polled see the recession arriving this year, even though the U.S. Federal Reserve has said it no longer sees that happening.
Because they see a recession as likely, most who answered the poll are shifting their focus to long-term treasury securities, the poll found. Earlier this month, yields in long-term treasuries approached their highs reached last October, which marked their best returns in years.
This is a good time to buy treasuries with maturities longer than seven years, about 60 percent of poll participants said.
The poll was taken before Fitch Ratings downgraded the U.S. credit rating earlier this month from AAA to AA+.
Forty-seven percent said today’s soaring stock market is a bubble floating on proverbial “irrational exuberance,” a significant portion of which is fueled by expectations for artificial intelligence.
A quarter of participants say today’s stock market is in a bear market rally; 26 percent say the market will continue rising into the future.
However, more than 65 percent see the Standard & Poor’s 500 index stuck in an earnings recession that will continue.
Expectations regarding inflation were not sunny. About 75 percent of people answering the survey expect inflation—as measured by the Personal Consumption Expenditures Index, the Fed’s favorite inflation gauge—to remain at or above 3 percent for the next 12 months or to dip slightly lower before bouncing back up.
The expected recession will be a delayed effect of the Fed’s 16-month campaign of interest rate hikes, respondents said, which has put above 5 percent to their highest in more than 20 years, the investors said.
Speculators in interest-rate futures are betting the Fed will cut rates several times next year, adding up to a reduction of at least a full percentage point. The cuts would be a likely Fed response to a recession.
Viewing the survey responses together, participants expect the Fed to cut interest rates next year even though inflation would be above its 2-percent target. That would indicate a recession of some severity, the Financial Times noted.
TREND FORECAST: With over a trillion dollars in debt, consumers are maxing out their credit cards and tapping their savings to pay rent and buy food. For months, due to inflation and shrinkflation, (shrinking the quantity of product but charging more) consumers are spending more to buy less.
Thus with consumers—whose spending accounts for nearly 70 percent of the U.S. Gross Domestic Product—buying less, the economic growth will decline.
At the same time, banks have less to lend: they have set aside more cash against the rising number of defaults in credit cards and commercial real estate loans. They also are sitting on an estimated $500 billion or more of low-interest bonds they bought during the COVID War that now have no buyers.
Combine a slump in consumer spending with a slump in lending and you have an economy poised for recession. It could arrive as soon as the end of this year.