Priced in or not, most asset managers don't think the U.S. economy is already in a recession. Although the same group seems to think there is danger of one occurring.
Jim McDonald, chief investment strategist at Northern Trust Corp. in Chicago, puts the odds of a recession at 50-50. The Fed is "in a difficult spot," balancing rate hikes to lower the prices of goods and services while not causing a recession, he said.
The chance of a recession occurring over the coming 12 to 18 months is relatively high; "it's a coin toss," said Jason Vaillancourt, Boston-based global macro strategist at Putnam Investments, with $167 billion in AUM.
If a recession happens, Mr. McDonald and other managers expect it to be a cyclical one, rather than a dramatic, event-driven slowdown such as the one that followed the start of the COVID-19 pandemic, or one caused by a structural collapse, like the financial crisis in 2008.
"The good news is that an upcoming U.S. recession may be relatively shallow, as corporate and consumer leverage and default rates are starting from a good place. This potentially offers something of a buffer until inflation begins to recede," said Alex Veroude, New York-based chief investment officer of fixed income at Insight Investment, a £817.1 billion ($1.07 trillion) asset manager that is part of BNY Mellon Investment Management.
Even if inflation slowed in June, Mr. Veroude said his firm anticipates inflation will remain above the Fed's 2% target until at least 2024. Some components of inflation are "sticky" or will take time to deflate. For example, rents have meaningfully accelerated in 2022 and will take months to come down, Mr. Veroude said.
Whether it is called a recession or not, Invesco's Ms. Hooper said the economy will "definitely have some kind of slowdown." The silver lining is that it will be relatively short-lived and markets — within months instead of years — could soon reflect a future recovery.
"We're telling clients not to panic because nothing seems to be broken in the market at this point," said Stephen L. Nesbitt, New York-based CEO of Cliffwater LLC, an alternative investment consulting firm, which manages $8 billion in discretionary assets and advisory assets of $99 billion. "The economy has already baked in the problems. We can't predict the direction of the market, and we are urging clients not to try to time the market."
Arleen Jacobius, Christine Williamson, Hazel Bradford and Brian Croce contributed to this article.