“Equities are unlikely to avoid a major decline in a recession.”

The markets seem to ignore that The global economy will experience a “soft landing”. and will be able to avoid the dreaded recessionExperts, however, are not all in favor of this idea. For example, since Bank of America (BofA) warned that the stock market will suffer serious consequences if their predictions come true and the economy cannot hold its own against the headwinds it is facing. “A major downturn is unlikely to be avoided in the event of a recession. »says the American bank.

In one of the bank’s latest reports, its experts lower expectations and sentiment among investors, who seem blindly trusting the ability of the stock market to weather the recession.if it occurs, especially if the downturn is short and shallow and accompanied by a softening of the service offering. US Federal Reserve (Fed).

This last question seems to be increasingly difficult, given the latest employment figures published by the United States. In the month of January hiring exploded and 517,000 jobs were created.This figure is much better than the consensus forecast of 185,000 and represents a strong increase from the 260,000 new jobs in December.

The website the strength of the labor market This makes it difficult for the Fed to suspend rate hikes or even lower the price of silver, as the market had expected, this year. And if the Fed keeps rates high, it will be harder for the U.S. to avoid recession and achieve the soft landing investors want, which the bank says is next. may be “disappointed”..

Although hopes of a soft landing for the global economy were raised by continued strong output growth, the recovery of PMI indices in the euro zone and the United States, the reopening of China , the easing of inflation and the disappearance of the European energy crisis, “recession risks remain high, as the global economy is still in the grip of a recession. Last year’s aggressive monetary tightening is starting to weigh on the economy with the usual lag.“, they warn.

This is why BofA calls for caution. “If the monetary tightening observed over the past year does indeed push the United States into recession, we believe that The market is unlikely to avoid a significant decline.“, underline the analysts of the bank.

And why ? Simply because, as they say, it would have consequences. Specifically, they point out that this would lead to:

1. Significant BPA reductions. Their macroeconomic projections already imply a decline of nearly 20% in earnings per share.

2. A widening of the equity risk premium.which they define as “a reliable corollary of the weakening of growth”.

” We are waiting this double whammy will only be partially offset by the momentum of falling real bond yields. (i.e. equity discount rate) in the face of increasing central bank restriction,” they note.

And they point out that for markets to simply “go through” a recession, several things would have to happen. On the one hand, it would require either “a weak growth environment without a sharp drop in earnings per share or an increase in risk premia” or “a collapse in real bond yields that fully offsets the effect of lower earnings per share and rising risk premiums.

It is, they note, two situations that “we consider improbable”.and therefore expect that the next recession “will result in lower energy consumption”. 20% off for the Stoxx 600up to 365 points in the second quarter”.

“We maintain a negative position on European equities,” said BofA analysts, who continue to believe that European equities are the most profitable. We remain “underweight” on cyclical stocks compared to defensive stocks and on yield stocks compared to growth stocks.. “Our forecast of a sharp loss in growth momentum, lower bond yields and widening credit spreads is consistent with an underperformance of 15% or more for European cyclicals versus defensives. and 10% for the value compared to the growth”, they justify.

By sector, their favorites, and so they advise. “overweightare food and beverages and pharmaceuticalswhile those who recommend underweight are banks and automobiles.

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