Survey of 30 market strategists reveals when they think the next U.S. recession will begin

Published Mon, May 2 20228:26 PM EDT

There's a big debate obsessing global markets right now: Is a U.S. recession imminent? CNBC International asked 30 high-profile market strategists when they see the next recession for the world's biggest, most capitalized economy. All the strategists were based in either Asia or the United States, and polling took place from April 5-8. CNBC offered the strategists anonymity in exchange for their views. The war has not just exacerbated the inflation problem, but it has prolonged it as well. Macro strategist Of the 30 strategists polled, exactly two-thirds — 20 individuals — told CNBC they believe a U.S. recession is coming before the end of 2023. Thirteen analysts expect a recession by the second quarter of next year, and seven predict a recession in the second half of next year. Ten strategists said they don't see a recession in the near future, with eight of that group saying they don't expect the U.S. economy to shrink any sooner than the conclusion of 2024's second quarter. Has U.S. inflation peaked? The economic optimists' conviction was driven by their belief that U.S. inflation has peaked or will soon peak. That would give comfort to the U.S. Federal Reserve, allowing it to ease up from hiking interest rates too aggressively — thereby supporting growth in the United States. A veteran economist who participated in the survey speculated that oil and other commodity prices have already peaked. "Repeatedly through my history of markets, crude oil prices often have a habit of reaching their upper and lower limit of a move very quickly related to the shock that is influencing the market," said the economist, who noted that oil prices spiked in 1990 after Saddam Hussein's Iraq attacked Kuwait, but actually eased afterward, even during the subsequent U.S. invasion. Russia invaded Ukraine on Feb. 24. Brent crude peaked near $128 a barrel in on March 8, but was changing hands most recently below $110. Strong balance sheets Another argument strategists made against an imminent recession was that strong corporate and consumer balance sheets can absorb some inflation pressure. U.S. corporations "have record cash levels on their balance sheets," one analyst said. And while rising inflation may hurt growth, there's a view among some CNBC survey respondents that post-pandemic comeback for the service sector — think entertainment, travel, restaurants and other consumer services — will ensure that the global economy continues to grow. "Savings rates have gone up, [and] household balance sheets can deal with the first part of the rate- tightening cycle," said another respondent. "The pandemic was an inflationary shock; however, it was also a positive productivity shock," said one strategist, who added that "all three inputs to productivity growth" — capital availability, labor market dynamism and technology adoption — "were accelerated by the pandemic." In this decade, "with all three inputs firing at once, productivity growth could push past its post-WWII average of a bit more than 2%. This should lead to still-fatter profit margins," explained that survey participant. Inverted yield curve Many survey participants worried that a recent inversion of the Treasury yield curve was an ominous sign pointing toward an imminent recession. At the end of March, the 2-year and 10-year U.S. Treasury yields inverted for the first time since 2019 — traditionally a warning signal that a recession may be on the horizon. The question will be about depth and duration — and I'm thinking shallow and not long enough to be technically defined as a recession. Market strategist The yield curve measures the spread between a bank's cost of money versus what it will make by lending it out or investing it over a longer period of time. If banks can't make money, lending slows and so does economic activity. As of May 3, the U.S. 2-year yield is lower than the 10-year yield, at 2.731% vs 2.987%. Many strategists' outlook rests on trying to map how U.S. consumers will respond to inflation. Those who believe a recession is an imminent danger suggest that a consumption slowdown is inevitable because of price shocks and a decline in home prices. How bad could it get? Even among the strategists who foresee a recession, many do not expect it to be too scary. "I'll be on the lookout for what I'll coin as an 'existential recession,' meaning consumers and businesses reign in spending based on feeling like they are heading into a recession," said one market strategist. "The question will be about depth and duration — and I'm thinking shallow and not long enough to be technically defined as a recession." But there was a broad view among survey respondents that aggressive monetary tightening by the Fed, a peak to global growth, and higher commodity prices will economic damage. The war in Ukraine may distort the economic picture even more. "The war has not just exacerbated the inflation problem, but it has prolonged it as well," a macro strategist said. "This will eventually cause consumer spending to slow. That's not good for a consumer-based economy [like the United States]. That said, recessions are normal and healthy, so investors should embrace them, not fear them." Asked about their portfolio strategy, most analysts said they're raising cash and will ride out volatility by increasing their holdings of quality stocks and commodities, including energy & precious metals such as gold. — CNBC's Patti Domm contributed to this report

Some CNBC survey respondents think that a post-pandemic comeback for the service sector will ensure that the global economy continues to grow.

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There's a big debate obsessing global markets right now: Is a U.S. recession imminent?