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#MoneyBeat Despite Volatility, Economists Aren’t Fretting Over a Recession

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NocRoom    0

Worries over a looming U.S. recession have bubbled up after this month’s wild stock-market swings and surge in U.S. bond yields.​​

Ray Dalio, founder of the hedge fund Bridgewater Associates LP, is among the investors who have warned of an economic downturn, writing in a LinkedIn post Monday that “the risks of a recession in the next 18-24 months are rising.”

But as the The Wall Street Journal’s Morning MoneyBeat newsletter noted Wednesday, others, including economists at S&P Global Ratings, say there is little reason to fret for now.

The firm pegged the odds of the U.S. slipping into recession over the next year at 10% to 15% in a report released Tuesday. That’s down from 15% to 20% in November, before this month’s global stock rout spurred concerns about the U.S. economic expansion.

S&P thinks the nearly-nine-year old stretch of U.S. economic growth will extend for at least another year to become the longest-ever U.S. expansion.

“The general tone of recent economic data remains broadly upbeat,” said S&P. “Barring a shock, this expansion has staying power.”

S&P cautioned that a prolonged stock market slide could become a catalyst for an economic slowdown, and many analysts say it’s unclear if last week’s stock plunge has fully run its course.

Still, a recent report from Goldman Sachs shows there’s little historical precedent to suggest stock corrections lead to broader economic downturns. The bank said fewer than a third of stock-market corrections over the past four decades coincided with a U.S. recession.

“Most equity market corrections recover without developing into bear markets or presaging recessions,” Goldman analysts wrote.

Another reason for optimism: U.S. stocks’ 6% slide this month has helped bring down measures of valuation that many feared were growing stretched. Other market imbalances that had been worrying investors and policymakers–including depressed long-term bond yields and unusually placid markets–have reversed.

The so-called yield curve, which measures the gap between short and long-term Treasury yields, has been steepening in recent weeks. That is typically a sign that investors are becoming more optimistic about longer-term U.S. growth prospects.

“This suggests a shrinking recession risk rather than a growing one,” said RBC Global Asset Management in a recent note.

To receive our Morning MoneyBeat newsletter via email, click here.


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