Recession Looms: Stock Markets Face Painful Downturn

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According to Chris Watling, CEO of the financial advisory firm Longview Economics, a recession is on the horizon, and investors may be in for a rough ride on the stock market. Speaking on CNBC’s “Squawk Box Europe,” Watling characterized the situation as “pretty compelling,” citing “terrible” leading economic indicators. Watling stated that the latest U.S. economic data suggests that equity markets will not survive a recession unscathed.

Timing of the downturn

Watling believes that the average duration of a recession following the inversion of the Treasury yield curve, which occurred in March 2022, and in the months that followed is approximately one year. Watling stated that whenever this has occurred in the United States, a recession has followed. Therefore, he believes that a recession is only a matter of time.

The IMF assessment

The International Monetary Fund stated on April 11 in its most recent World Economic Outlook report that it was surprised by the recent strength of the U.S. labor market and consumer spending, despite the fact that many economists have warned of an impending recession. The IMF expects the world’s largest economy to grow 1.6% this year, compared to 1% in 2022. Gita Gopinath, first deputy managing director of the International Monetary Fund, told CNBC’s Joumanna Bercetche that a hard landing remained “within the realm of possibility.”

Market anguish

Watling believes that stock markets will not emerge unscathed from a recession, particularly in terms of earnings expectations. He believes that earnings expectations are “way too optimistic,” and that the stock market will eventually have to address this issue. Therefore, investors must anticipate some market suffering.

Source: ©Joe Raedle/Getty Images ; cnbc
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