‘The narrative isn’t clear yet’: Recession risks cloud Wall Street’s 2024 outlook

Investment banks and asset managers’ outlooks for the U.S. in 2024 are rife with speculation about an upcoming recession as the economy gives both warning signs and signs of life, according to Reuters.

Top forecasters differ wildly in their economic predictions for the next year, with top U.S. banks Goldman Sachs and JP Morgan Chase predicting a “limited risk” and a “risk of recession,” respectively, while Deutsche Bank and Société Générale both predict a recession in the first half or middle of the year, according to Reuters. Economists on average predicted a total of 1.2% gross domestic product (GDP) growth in 2024, falling below the desired 2% and indicating a possible recession.

“Whether the U.S. has a hard landing or a soft landing will dominate the market,” Sonja Laud, chief investment officer at Legal & General Investment Management, told Reuters. Laud noted that “the narrative isn’t clear yet” and that if there was a change in interest rate forecasts, it would create “significant volatility.”

Investors have increasingly pulled back from highly risky options trading over concerns about future stock market volatility, according to Reuters. Some institutions following the unpredictability are promoting bonds, which are viewed as a safer asset.

Some financial institutions are not counting on an upcoming recession, with Morgan Stanley predicting a continuation of high-interest rates from the Federal Reserve as well as increased dollar strength into the new year, according to Reuters. The mix of predictions follows skepticism due to recession predictions for this year that have so far failed to materialize.

Some financial institutions are particularly positive about the economy following huge GDP growth in the third quarter of 2023, totaling 5.2% year-over-year, far greater than the 2.1% growth in the previous quarter. Despite the high growth, it is not clear if it will last, and other indicators, including inflation, have failed to move in a positive direction, measuring 3.2% for the year in October.

The non-partisan Leading Economic Index predicts a recession early next year, resulting in only 0.8% GDP growth for the entire year. The prediction uses a number of economic indicators to gauge the future, with factors like low consumer sentiment, a low number of new orders from businesses, and tight credit conditions adding to that negative evaluation.

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