news/GOOGL/2023.01.25/Wall Street heavyweights warn of pain ahead despite market’s recent reprieve.txt

NEW YORK, Jan 25 (Reuters) -Some of Wall Street’s biggest names are throwing cold water
on expectations that the U.S. economy will scrape through 2023
without a recession, even as hopes of easing inflation and
resilient growth propel stocks higher.Banks and asset managers that have reiterated recession
calls include BlackRock, Wells Fargo and Neuberger Berman, with
many warning the Federal Reserve is unlikely to force inflation
lower without hurting economic growth.The warnings contrast with signs of optimism in markets. The
S&P 500 has jumped more than 4% so far in 2023, fueled in part
by bets that inflation will continue to slow, allowing the Fed
to soon pull back from the rate increases that shook markets
last year. The tech-heavy Nasdaq 100 is up more than 7%.“Money is dying to get back into this market but we still
think you get an economic slowdown and that earnings
expectations are still too high,” said Paul Christopher, head of
global investment strategy at the Wells Fargo Investment
Institute.Correctly gauging the economy is crucial for investors.
Stocks tend to perform poorly in economic downturns, with the
S&P 500 falling an average of 29% during recessions since World
War Two, according to Truist Advisory Services.While recessions are called in hindsight, investors have
said that still-robust job growth makes it unlikely that one has
already started.Many strategists are focused on the Fed, pointing to years
of market history that suggests the central bank's rapid rate
hikes will eventually force unemployment higher and tip the
economy into a recession.The Fed last year raised its benchmark rate to between 4.25%
and 4.50% from zero and is widely expected to increase it by
another 25 basis points at the conclusion of its Feb. 1 meeting.Policymakers have projected their key policy rate would top
out at between 5.00% and 5.25% this year. Market pricing
indicates investors are taking a more dovish view, with the rate
peaking below 5% around mid-June before falling in the second
half of the year.The latter outlook is not shared by BoFA’s strategists, who
recommended positions that would benefit from a “grind lower” in
U.S. equities, noting that Fed "cutting cycles in history have
almost exclusively been associated with either a recession ...
or a financial accident," they said.Charlie McElligott, managing director of cross-asset
strategy of Nomura Securities, believes the current rise in
stocks is partially driven by under-positioned investors fearful
of missing a longer-term shift to the upside, a dynamic that
fueled several rallies last year.Those rebounds inevitably crumbled, leaving the S&P 500 with
a 19.4% annual loss, its worst since 2008. The most recent rally
has lifted the S&P 500 more than 11% from its October lows."You are now getting the disinflationary impulse that the
Fed has been seeking and it's moving ahead of schedule," he
said. "Now the challenge is that people are under-positioned and
are ... absolutely being forced into a painful trade because the
Fed hasn't won the fight yet."The current stock rally “hints at how markets will likely
react once inflation eases and rate hikes pause,” wrote analysts
at BlackRock, the world’s largest asset manager, earlier this
week. “Before this outlook becomes reality, we see (developed
market) stocks falling when recessions we expect manifest.”Neuberger Berman sees the S&P 500 dropping to as low as
3,000 this year - a decline of nearly 25% from its current level
- as rebounding inflation forces the Fed to become more
aggressive."You need that kind of decline in stock prices to neutralize
the wealth effect that is the source of inflation," said Raheel
Siddiqui, a senior research analyst in the firm's global equity
research division.Of course, plenty of investors are taking banks' forecasts
with a grain of salt.Burns McKinney, a portfolio manager at NFJ Investment Group,
noted that most banks failed to predict the inflationary surge
that forced the Fed to ratchet up rates. Strategists polled by
Reuters at the end of 2021 saw the S&P 500 gaining a median of
7.5% last year.McKinney expects any recession to be a shallow one, and
is moving into industrial stocks and technology firms that are
poised to benefit from slowing inflation.“Stocks aren’t terribly cheap and they are not terribly
expensive either,” he said. “There’s a lot of ways to describe
Goldilocks but the market is priced just about right.”(Reporting by David Randall, additional reporting by Lewis
Krauskopf and Saqib Iqbal Ahmed, Editing by Ira Iosebashvili and
Deepa Babington)