After a raucous first half of 2023, Wall Street is still wondering if recession is in the cards

Jun 29, 2023, 6:06 AM

FILE - A sign is displayed on the floor of the New York Stock Exchange in New York, Wednesday, June...

FILE - A sign is displayed on the floor of the New York Stock Exchange in New York, Wednesday, June 14, 2023. Halfway into 2023, and so little on Wall Street has gone according to plan. The S&P 500 has climbed roughly 14% as one of the most-predicted and longest awaited recessions in history has yet to appear. (AP Photo/Seth Wenig, File)

(AP Photo/Seth Wenig, File)

NEW YORK (AP) — Halfway into 2023, little on Wall Street has gone according to plan.

Earlier this year, many investors thought the U.S. economy would be falling into a recession by now, the Federal Reserve would have to start cutting interest rates and a strong economic recovery for China would provide a cushion for the global economy.

None of those things has happened. In the meantime, the U.S. stock market has rallied roughly 14% to touch its highest level since April 2022.

As Wall Street looks toward the back half of 2023 and beyond, it’s stuck in a sort of purgatory. Many investors are still preparing for an upcoming recession, but they keep pushing out their predictions by another few months. Until more clarity arrives on whether a downturn will indeed arrive, markets could be in for a shaky path.

Here’s a look at the arguments for the upside and downside:


Despite piles of predictions for a recession, the U.S. economy keeps chugging along. The job market has remained remarkably solid, helping consumers feel confident and willing to spend. That’s offset weakness in such industries as banking and manufacturing caused by high interest rates.

The Federal Reserve has hiked interest rates at a blistering pace to slow the economy in order to undercut high inflation. But the end of those hikes appears to be nearing as inflation has slowed since last summer. The Fed has suggested only one or two more increases may be on the way this year.

An economy that avoids a recession would support corporate profits, which are the lifeblood of the stock market. It could also broaden out the market’s gains.

A big concern this year has been how much of the S&P 500’s rise is tied to a handful of big stocks, particularly those benefiting from the artificial-intelligence boom. So far this year, the biggest 15 companies in the S&P 500 have gone up 34%, while the median company is up just 1%, according to Goldman Sachs.

Some broadening out may have already begun, with the smallest stocks in the Russell 2000 index up more than the S&P 500 through the first four weeks of June.

Plus, more money is sitting on the sidelines in cash that could get invested, which offers potential fuel for the stock market. Nearly $2 trillion is in retail money-market funds held by the general public, not including $3.44 trillion more held by institutions. That’s up 11% in just four months, according to the Investment Company Institute.


Yes, the economy has avoided a recession because of a strong job market. But that’s often one of the last things to crack under the pressure of higher rates.

A pattern usually occurs in such cycles: In the last nine rate-hike campaigns by the Fed, seven have resulted in a recession, according to Darrell Cronk, president of Wells Fargo Investment Institute. He’s still expecting a downturn to hit in the second half of 2023 or early 2024, even if it’s “the most predicted and longest anticipated recession in recent memory.”

Even if the Fed soon stops hiking rates, it has pledged to keep them high to drive inflation down to its 2% goal. That could take a while with inflation still 4% last month, as measured by the consumer price index, and it’s hard for investors to predict what might break if rates remain high for a long period of time.

The Fed has pulled its benchmark rate up by a mammoth 5 percentage points from virtually zero at the start of last year, which has already helped cause several U.S. bank failures.

“There is a path higher for stocks, but it is a narrow one and comes with risks: Economic growth can neither be so strong as to force the Federal Reserve into further hikes, nor so weak as to drive fears of a recession,” according to strategists at UBS.

If the Fed can’t manage its narrow path, a recession could pull profits sharply lower. That would hit stocks doubly hard because critics say they already look pricey compared with how much profit companies are producing.

A drop in profits is one reason Morgan Stanley Wealth Management says the S&P 500 could be lower in mid 2024 than it is now in its base case scenario.


Whether stocks go up or down, investors can take some solace in that bonds are paying more in interest than a year ago.

That could provide more income and more protection for those who hold a mixed set of stocks and bonds in their portfolios, as many experts recommend. A 10-year Treasury recently offered a yield of 3.76%, up from roughly 1.50% at the start of last year.

United States News

FILE - Speaker of the House Kevin McCarthy, R-Calif., leaves the chamber at the Capitol in Washingt...

Associated Press

U.S. government avoids shutdown hours before deadline

The threat of a federal government shutdown ended late Saturday hours before a midnight deadline and sent the measure to President Joe Biden.

25 minutes ago

Associated Press

UN to vote on resolution to authorize one-year deployment of armed force to help Haiti fight gangs

SAN JUAN, Puerto Rico (AP) — The U.N. Security Council is scheduling a vote Monday on a resolution that would authorize a one-year deployment of an international force to help Haiti quell a surge in gang violence and restore security so the troubled Caribbean nation can hold long-delayed elections. The U.S.-drafted resolution obtained by The […]

2 hours ago

Associated Press

The police chief who led a raid of a small Kansas newspaper has been suspended

The police chief who led a highly criticized raid of a small Kansas newspaper has been suspended, the mayor confirmed to The Associated Press on Saturday. Marion Mayor Dave Mayfield in a text said he suspended Chief Gideon Cody on Thursday. He declined to discuss his decision further and did not say whether Cody was […]

5 hours ago

FILE - Rep. Jamaal Bowman, D-N.Y., listens to fellow speakers before President Joe Biden speaks on ...

Associated Press

Rep. Jamaal Bowman triggered a fire alarm in a House office building amid voting on a funding bill

WASHINGTON (AP) — Democratic Rep. Jamaal Bowman acknowledged triggering a fire alarm Saturday in one of the U.S. Capitol office buildings as lawmakers scrambled to pass a bill to fund the government before the midnight shutdown deadline. The fire alarm sounded out around noon in the Cannon House Office Building and prompted a building-wide evacuation […]

5 hours ago

Associated Press

Federal agency sues Chipotle after a Kansas manager allegedly ripped off an employee’s hijab

A federal agency has sued the restaurant chain Chipotle, accusing it of religious harassment and retaliation after a manager at a Kansas location forcibly removed an employee’s hijab, a headscarf worn by some Muslim women. In a lawsuit filed Wednesday, the Equal Employment Opportunity Commission alleged that in 2021, an assistant manager at a Chipotle […]

6 hours ago

(AP Photo/Mariam Zuhaib, File)Credit: ASSOCIATED PRESS...

Associated Press

On the brink of a federal shutdown, the House passes a 45-day funding plan and sends it to Senate

On the brink of a federal government shutdown, the House on Saturday swiftly approved a 45-day funding bill to keep federal agencies open as Speaker Kevin McCarthy dropped demands for steep spending cuts and relied on Democratic votes for passage to send the package to the Senate.

6 hours ago

Sponsored Articles



Importance of AC maintenance after Arizona’s excruciating heat wave

An air conditioning unit in Phoenix is vital to living a comfortable life inside, away from triple-digit heat.

Home moving relocation in Arizona 2023...

BMS Moving

Tips for making your move in Arizona easier

If you're moving to a new home in Arizona, use this to-do list to alleviate some stress and ensure a smoother transition to your new home.



Here are the biggest tips to keep your AC bill low this summer

PHOENIX — In Arizona during the summer, having a working air conditioning unit is not just a pleasure, but a necessity. No one wants to walk from their sweltering car just to continue to be hot in their home. As the triple digits hit around the Valley and are here to stay, your AC bill […]

After a raucous first half of 2023, Wall Street is still wondering if recession is in the cards