Recession Talk is Rising—But Fundamentals Tell a Different Story

Many economists and TV pundits say a recession is looming. But key indicators suggest a strong economy, at least for the year ahead. Economists Say Risk of Recession is Rising – Here’s My Take Turn your TV to the financial news today, and it won’t take long before someone says the risk of the U.S. and a global recession is rising. Many economists and pundits are arguing that a recession could arrive as soon as this year, and everyone is citing the same headwinds – out of control inflation, a Federal Reserve that was too late to raise rates and is now certain to choke off growth with monetary tightening, and continued disruptions to commodity markets that will impact consumer spending and corporate profits.1 This narrative is becoming pretty widespread. According to a survey of economists conducted by The Wall Street Journal, the risk of recession in the next twelve months is 28%, up from 18% just two months ago. --------------------------------------------------------------- [Investing During a Potential Recession…What Steps Can You Take?]( Lately, there has been plenty of conversation about the market going into a potential recession. Instead of letting fearful headlines cause you to make knee-jerk responses, I recommend you prepare your investments! To help you do this, I am offering all readers our just-released Stock Market Outlook report. This report contains some of our key forecasts to consider such as: - U.S. Macro Outlook - What fundamentals are U.S. stock markets pricing in with ‘22 and ‘23? - What of U.S. GDP Growth? - Zacks forecasts for the remainder of the year - Zacks rank S&P 500 sector picks - And much more If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [IT'S FREE. Download the Just-Released May 2022 Stock Market Outlook2]( --------------------------------------------------------------- The International Monetary Fund (IMF) is also feeling a bit gloomier about the outlook – Managing Director Kristalina Georgieva is poised to cut growth forecasts for 143 countries representing 86% of global GDP. Georgieva’s rationale for slower-than-expected growth is, you guessed it, rising commodity prices and trade issues. These pressures globally could impact household spending, squeeze profit margins, and create a significant impact on net food importers like emerging markets countries in the Middle East and Africa, the IMF says. The sentiment is souring, but there is a silver lining here that few are acknowledging. Even though the chorus in financial media today is for flashing recession signals, those same economists still expect inflation-adjusted U.S. GDP to go up by 2.6% in 2022, which is higher than the average annual growth rate for the decade leading up to the pandemic. There seems to be a great deal of worrying about an economy that people are also admitting is quite strong! If the base case is that the recession is likely to arrive in 2023 or 2024, I think that’s too far into the future to be a reliable prediction. There is also a mixed track record for these economist surveys. The last two times the risk of recession was around 30% (as per the survey) were in August 2011 and September 2019. The August 2011 concerns about the economy were essentially dead wrong. 2011 was the second year in a decade-long economic expansion. September 2019 also seems like it would have been wrong had it not been for the pandemic in early 2020, which no one was factoring into their forecasts. My take on the matter is that I see the U.S. economy growing firmly in 2022 (perhaps in the ~3% range), and if I was asked to forecast 2023 and 2024, I wouldn’t – it’s too far away, and we need more time to see how economic fundamentals shape up. This year I think the strong jobs market, rising wages, and consumer households in good shape will be plenty to overcome inflationary pressures that I think are poised to abate in the second half of the year. On the U.S. corporation side of the equation, S&P 500 companies have collectively reported profit margins of 12.18% over the past 12 months, which is significantly higher than historical profit margins. In fact, there have only been three years since 1999 when corporate profit margins reached double-digits – 2006, 2018, and 2019. And even in those three years, corporate profit margins never even reached 11%. The figures for 2021 shattered those records and also represent the highest after-tax corporate profits relative to GDP that have ever been recorded (records date back to the 1940s). One might expect that corporate profit margins have peaked, particularly in this more challenging economic environment, but signs indicate there may be more room to run – S&P 500 companies are expected to generate net profit margins approaching 13% in 2022, as companies raise prices slightly and focus on investment that increases productivity. The strong profit outlook has led analysts and companies to raise – not lower – corporate earnings expectations for the fiscal year 2022. If there is indeed a risk of recession, it’s difficult to argue that it will arrive this year. And for investors, that’s what matters most right now. --------------------------------------------------------------- Bottom Line for Investors Anytime I see ‘experts’ and the media align on a common set of worries and skepticism about the economy when in reality the economic fundamentals are strong and very underappreciated, it just makes me more bullish. The stock market moves on reality versus expectations, and low and falling expectations just mean the economy and U.S. corporations have a lower hurdle to clear for delivering a positive surprise. That’s what I think we’ll see in 2022. To help you prepare your investments for a potential recession instead of worrying, I recommend staying focused on the facts! Doing the proper research will help you keep your investments on track. I am offering all readers our [Just-Released May 2022 Stock Market Outlook Report](. This exclusive report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you'll discover Zacks’ view on: - U.S. Macro Outlook - What fundamentals are U.S. stock markets pricing in with ‘22 and ‘23? - What of U.S. GDP Growth? - Zacks forecasts for the remainder of the year - Zacks rank S&P 500 sector picks - And much more If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [FREE Download – Zacks' May 2022 Stock Market Outlook Report3]( About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused. [Let's Set Up a Talk]( Don't put off planning your secure, happy retirement! Get started today by talking to a Zacks Wealth Advisor. © Zacks Investment Management | [Privacy Policy]( 1[Wall Street Journal. April 10, 2022]( 2Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. 3Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation. Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein. The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index. The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. Zacks Investment Management 227 West Monroe Suite 4350 Chicago, Illinois 60606 --------------------------------------------------------------- If you do not wish to receive further email solicitations from Zacks on behalf of its partners, please click [here]( to unsubscribe.