This is the bull case for stocks, according to Credit Suisse, as banks remain divided on the recession risk

Published Mon, Mar 28 202211:19 PM EDTUpdated Tue, Mar 29 20222:22 AM EDT

As Wall Street closely monitors the growth outlook, Credit Suisse says the likelihood of a recession is overstated and predicts the economy will "run hot." Here is its "bull case for stocks," along with a summary of how others on Wall Street see the recessionary risk. Recession fears have grown since the Federal Reserve announced its first rate hike in more than three years and signaled more are on the way as it seeks to stamp out runaway inflation. Surging energy prices and geopolitical risks in Europe have compounded market nervousness about a possible economic slowdown. What's more, U.S. 5-year and 30-year Treasury yields inverted for the first time since 2006 on Monday, heightening fears of a possible recession. Analysts from Goldman Sachs and Raymond James highlighted increasing recession risk in separate notes on Mar. 23 and Mar. 27, joining a chorus of prolific money managers such as Carl Icahn, Dan Niles, Jeffrey Gundlach and more in warning of an impending recession . Nonetheless, Credit Suisse's Chief U.S. Equity Strategist Jonathan Golub has a different view. "It's too soon to call a recession," Golub told CNBC's "Squawk Box" on Mar. 23. The 'bull case' In a note entitled "The Bull Case for Stocks" on Mar. 21, Golub said monetary policies would be insufficient to bring inflation under control, thus providing a supportive backdrop for stock prices. Golub noted that stock multiples have declined since the beginning of 2021, with a corresponding change in narrative from "multiples are too high" to "profits are unsustainable." He added that revenues of S & P 500 constituents have a levered relationship to the overall economy and should remain "extremely robust" against the backdrop of a consensus GDP growth forecast of 8.7% for 2022. Credit Suisse also noted a rise in forward earnings estimates since the start of the year, and expects the trend to continue through 2022. The bank's forecast for earnings of S & P 500 companies is above consensus. Read more Many investors fear a recession is around the corner. How to protect and profit if one hits Here's how Carl Icahn is positioning for a possible recession in America Dan Niles predicts a recession — and picks stocks to weather the volatility ahead In addition, "S & P 500 companies are far more cash flow generative than they've been in the past, further strengthening the case for higher stock prices," Golub said. To be sure, Credit Suisse is not the only bank on Wall Street with a more sanguine economic outlook. Here are what some other banks are saying: Morgan Stanley "Curve inversion does not guarantee a recession, and our economists don't expect one. However, it does support our view for sharply decelerating earnings growth and is one more piece of evidence that says it's late cycle." — Michael Wilson, chief U.S. equity strategist. "A policy mistake that causes a recession is clearly possible, but our baseline is that an inversion without a recession is more likely." – Seth Carpenter, chief global economist. JPMorgan "We believe investors should add risk in areas that overshot on the downside such as innovation, tech, biotech, EM/China, and small caps. These segments are pricing in a severe global recession, which will not materialize, in our view." — Marko Kolanovic, chief global markets strategist & co-head of global research. Bank of America "The bottom line is that near-term recession concerns are likely overdone. The economy and the labor market have strong momentum and should benefit from reopening tailwinds for the next few quarters. But fast-forward to the second half of 2023 and recession risks will probably be much higher." —Aditya Bhave, senior U.S. and global economist. ISI Evercore "A hawkish Fed responding to generationally high inflation. An escalating tragedy in Ukraine which, aside from further disrupting supply chains already frayed as the pandemic enters its third year, poses not only a direct threat to global commodity markets but to the world political and economic order extant since the Fall of the Berlin Wall in 1989. "No wonder then that growth outlooks have been slashed. Recession has moved to nearly the base case in Europe, while the past history of extreme oil price spikes would suggest a similar future could await the U.S." — Julian Emanuel, senior managing director of equity.

Rate hikes, soaring energy prices and geopolitical risks have combined to stoke fears of a possible recession. Credit Suisse however, thinks that is an unlikely scenario.

Michael Nagle | Bloomberg | Getty Images

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