On average, 71 business and academic economists polled by the Journal put the probability of a recession in the next 12 months at 61%… three-quarters of respondents said the Fed wouldn’t achieve a soft landing this year. … While economists don’t think a recession can be avoided, they expect it to be relatively shallow and short-lived, in line with other recent surveys… [end quote]
The WSJ banner in the graphic above blocks the bar which shows that 31% of the economists think the Fed will begin to cut in 4Q23.
The Fed has said clearly that they do NOT expect to cut the fed funds rate in 2023. But look how half the economists don’t believe the Fed about its own policy. The stock and bond markets are acting the same way – they don’t believe the Fed.
All the stock market trends are bullish for early 2023. This hardly looks like a stock market that expects a recession.
The market is moving from neutral into a risk-on stance as stocks and junk bonds are rising relative to the UST. The Fear & Greed Index is in Greed.
The entire yield curve has dropped except for the short end which is controlled by the Federal Reserve raising interest rates. The markets believe that the Fed will succeed in bringing inflation down to its target of around 2%. But the markets think this will happen without a serious recession.
The USD continues to fall. Gold and copper are rising. Copper is rising faster than gold, a “mungofitch ratio” that could indicate faster economic growth if it persists – but it’s just noise unless a longer trend appears. Oil is bouncing around in a channel. Natgas is plunging.
The METAR for next week is sunny. The markets (stock and bond) have shrugged off old bad news for the time being. There isn’t any new bad news on the horizon this week.