There Might Be a Recession, but It Won’t Be Long, Wall Street Says

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Fears about a possible recession sent stock markets into free fall on Monday as investors considered the prospect of Federal Reserve officials hiking interest rates to combat soaring inflation. But some Wall Street executives are shrugging.

Morgan Stanley

(ticker: MS) CEO James Gorman said he is “pretty relaxed” about the impact of a possible U.S. recession, putting the chances at about 50%, based on historical experience.  

“We’re in a brave new world right now. I don’t think anyone can accurately predict inflation one year from now,” Gorman told an investor conference on Monday, The Wall Street Journal reported. He pointed to the strength of corporate balance sheets and consumer credit as reasons to be optimistic that a recession wouldn’t be severe or last a long time.

The selloff in global markets accelerated after the government said on Friday that U.S. consumer inflation reached its highest level in more than four decades in May, raising the chance that Federal Reserve officials might implement a larger-than-expected 0.75-percentage-point interest-rate increase at their meeting this week.

Gorman said that while the stock market selloff has hampered

Morgan Stanley
’s
investment-banking business in the short term, the weak market also is reason not to worry. “We’ve had plenty of cycles where things look shaky and the market tells a different story,” he said. “I wouldn’t say I’m totally relaxed, but I’m pretty relaxed.” 

Gorman’s views were echoed by

JPMorgan Chase & Co
’s
(JPM) strategist Marko Kolanovic, who said the selloff in the stock market should be short lived as the U.S. economy avoids a near-term recession.

“Friday’s strong CPI print that led to a surge in yields, along with the selloff in crypto over the weekend, are weighing on investor sentiment and driving the market lower,” Kolanovic wrote in a note to clients on Monday.

“However, we believe rates market repricing went too far and the Fed will surprise dovishly relative to what is now priced into the curve. The move in markets prices in more than enough recession risk, and we believe a near-term recession will ultimately be avoided thanks to consumer strength, COVID reopening/recovery, and policy stimulus in China,” Kolanovic added.

Write to Lina Saigol at [email protected]