Markets are behaving as if they're unfazed by the risk a recession could be on the horizon, and that's because a downturn would potentially solve a handful problems that are weighing on stocks, according to DataTrek.
In a note on Friday, the research firm pointed to the growing risk of recession over the past year amid higher interest rates and a credit crunch stemming from March's bank failures. But markets have been buoyant in the face of those risks, DataTrek co-founder Nicholas Colas said, and a recession could remedy the"three most intractable problems" in markets that were spawned by the pandemic: . Prices notched a 41-year-record in mid-2022, and still remain well-above the Fed's 2% inflation target – a factor that weighed heavily on corporate earnings and caused stocks to slump 20% in 2022..
"US equity markets are not just looking past an upcoming recession but actually embracing the possibility of an economic contraction," Colas said, adding that all three issues in the market have been resolved quickly with every recession since 1960.