US500 closer to 3900 points 📉 BlackRock predicts US recession

While S&P 500 futures continue yesterday's declines analysts from the BlackRock (BLK.US) Investment Institute shared with the market a look at the US economy in 2023:

A hard landing?

• The U.S. economy is in for a hard landing despite China's reopening, lower unemployment and still solid consumer spending. The Fed will not help the markets and will not cut rates in 2023 because wage pressures threaten a relapse into inflation;
• So far, markets are seeing only one-fifth of the effect of the Fed's actions. An unyielding Federal Reserve in an environment of lower consumption could mean further problems for debt-financed companies;
• Growth of the US economy in 2023 will be just 0.3%. The slowdown from a projected 2% to 0.3% seems large, but is actually smaller than the -2.5% average in the US during the first year of every recession since 1950. 

Strong labor market with weaker consumers

• Wages in the U.S. have risen by about 5% in 2022, well above the 2/3% pace that would facilitate inflation targeting. A moderate recession is unlikely to be enough to bring inflation down to 2%. According to Black Rock, the only way central banks can lower wage pressures will be if a severe recession hits the labor market;
• Consumers are usually the last to feel the effects of the crisis, however, U.S. households are now saving an average of just 2.4% of their total income, compared to a 7.6% average before the pandemic. Americans' savings surplus now stands at about $1.3 trillion, nearly 40% less than the $2.3 trillion reached in mid-2021 when spending was relatively low (panedmia) and stimulus checks fueled wallets. Analysts expect a sharp decline in consumption in 2023.

Conclusions

BlackRock's scenario may indicate that indexes have recently overdone their euphoria and corporate earnings will be dragged down by weaker consumers. The C/Z ratio for S&P500 companies is currently around 19 versus an average closer to 12 in previous recessions. If the scenario plays out, investors are likely to again lean toward 'defensive stocks' at the expense of risky assets like growth stocks and cryptocurrencies. Gold and shares of Chinese companies may also benefit during the recession. China's economy, according to BlackRock, could see up to 6% growth. However, demand for Chinese commodities will be lower amid the global recession, according to analysts. 

US500 chart, H4 interval. The main US index continues yesterday's declines. Looking at the chart, we can see that it did not hold the trend line, however, it is still at levels from which an upward impulse can be launched. The SMA 100 and SMA 200 averages are close to a bullish intersection, and the RSI indicator has approached near 30 points signaling oversold, from where upward imupls have often been triggered. On the other hand, a stronger below 3900 pts where the 100 and 200 session averages run may indicate a prolonged weakening of sentiment and a continuation of the downward trend of 2022. Source: xStation5