The possibility of a recession on the horizon does not seem to faze the markets, as it may actually solve some of the issues that are currently plaguing the stock market. DataTrek has highlighted the growing risk of a recession due to higher interest rates and the credit crunch resulting from bank failures in March. However, Nicholas Colas, the co-founder of DataTrek, believes that a recession could resolve the "three most intractable problems" that have arisen due to pandemic. He also noted that markets have historically seen a recession as a "feature" rather than a "bug".
While a recession could strengthen the earnings power of firms, commentators have warned that stocks are likely to be weighed down in the near-term. JPMorgan has forecasted that equities could tumble by at least 15% in the event of even a mild recession. More bearish market voices, such as legendary investor Jeremy Grantham, have predicted a 50% crash in stocks as the bubble in asset prices bursts.
Colas had previously stated that he did not see the US avoiding a recession in 2023, which is in line with what other experts have warned for the economy. The possibility of a recession is not something that investors should take lightly, as it could have significant repercussions for the stock market. However, it appears that the markets are currently embracing the possibility of a recession as a means of resolving some of the issues that have arisen in the wake of the pandemic.
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