• Strategist does not see a long-lasting downturn in the economy
• Invest in a broader field
A few weeks ago, US President Joe Biden signed the debt law. This is intended to temporarily suspend the government debt ceiling until 2025. Without this law, the US would have become insolvent. A global financial crisis was thus prevented at the last moment: “It could not have been more at stake,” said Biden in a speech to the nation from the Oval Office in the White House. “We prevented an economic crisis and an economic collapse”.
According to the US President, with the signing of the debt law, a US recession is off the table. “Our economy would have been thrown into recession,” he said. Still, some strategists still believe the US is on the verge of an incipient recession.
The Fed’s fight against high inflation
According to the recently released US inflation data, the inflation rate is still 4.0 percent. However, compared to the previous month at 4.9 percent, it has fallen significantly. The US Federal Reserve has tried to curb inflation by raising interest rates. Nevertheless, the strong US labor market data in particular complicates the fight. US officials had hoped that higher borrowing costs would slow the economy and slow wage and price increases.
David Rosenberg, President of Rosenberg Research, has criticized the Fed for raising interest rates too aggressively. He sees a short-term recession looming through September and a 20 percent drop in shares, Business Insider reports.
Principal Asset Management’s chief global strategist Seema Shah said on a Bloomberg podcast episode “What goes up” that the Fed’s rate hikes will cool the economy. However, she does not see this as a long-lasting downturn. For one, according to her statement, private households still have ample savings despite rising prices and higher debt repayments. Second, long-term, fixed-rate mortgages would have made the US economy less vulnerable to interest rate increases than other global countries.
Strategist: “Creative and broader investing”
Shah believes the US economy will not slow down until later this year. According to her statement in the podcast episode, she expects a mild recession that will end next spring. “This is historically a very short mild recession,” she said. “I almost wonder if this will even feel like a recession,” she continued.
Unemployment was 3.7 percent in May. As the strategist told Bloomberg, the rate could rise to 4.1 percent. Also, there could be a drop in shares. However, it is unlikely that the S&P 500 will fall below 4,000 points because artificial intelligence is having a positive impact on corporate profits.
Her advice to investors: “I think you have to be a bit more exotic when it comes to the way you think about investing,” she told the news outlet.
Jeffrey Gundlach: Recession is coming
Jeffrey Gundlach, the CEO of DoubleLine Capital, sees a recession in the USA despite the banking crisis being overcome and the debt dispute being settled. According to MSN, he bases his forecast on two points: First, he is very concerned about the inversion of 2-year and 10-year government bond yields. According to Gundlach, an inverted yield curve is a reliable indicator of an imminent economic downturn. Second, he points out that supplier delays are at their lowest level in 30 years. This suggests that supply is greater than demand.
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