50% Chance of a Recession in 2023

Steve Skalka.

Steve Skalka, chief fiduciary officer with Harbour Trust Investment Management Company, delivered a rapid-fire overview of equity, inflation, and economic data.

“Are we in a recession? That’s what we hear over and over again,” Skalka said. “We have negative economic growth forecasted for the first two quarters of the year in the U.S. During the pandemic, overstimulation led to inflation and the end of easy monetary policy. Supply and demand led to inflation. Four primary supply bottlenecks that escalated inflationary pressure were products (think semiconductors), transportation, labor, and energy. Some relief is projected on the product front moving forward in areas like agricultural products and primary metals.”

“Good news is that prices are showing signs of coming down. Some relief is also showing on the transportation front. But labor remains an issue,” he said. “We have more job openings than people willing to take those jobs. Fewer workers equal higher wages. Energy is also an issue, as it impacts everything. Hostile energy policies have­­ led to a drop in infrastructure investment.”

“When fighting inflation, we have to look back at history. Ultimately what finally put the brakes on inflation before is the increases in interest rates, a recession, and a fed pivot. The Fed pivoted too fast in the late 1970s and inflation took off again. It took a second recession to put the brakes on inflation. That’s why we think the Fed is not going to pivot again too quickly. Inflation will go down, but the Fed’s probably got some more moves to make.”

“Realistically, there’s about a 50% chance of a recession in 2023,” Skalka said. “On the equity side, earnings decline during a recession. But there are pockets of opportunity. Energy and defense contractor stocks have done well, for example. Also, higher-quality stock bands are doing better.”

“The good news is that here, locally, our area might be a standout. In these instances, you probably don’t want to be on either coast. The exodus from Illinois has brought about a lot of changes here,” Skalka added.

See Skalka’s presentation here.

 Full Article: https://buildingindiana.com/optimistic-outlook-mostly/