In this article, we will discuss is recession coming. Bank of America is warning that high inflation poses a credible threat to the economic recovery that began just two years ago.
“Inflation shock' worsening, 'rate shock' just beginning, 'recession shock' coming," Bank of America chief investment strategist Michael Hartnett wrote in a note to clients.
Is Recession Shock Coming?
Bank of America is not outright calling for a recession in the United States. But the bank is raising the specter of a slowdown and pointing to recession signals on Wall Street.
Hartnett noted that price action in financial markets has been very “recessionary,” citing steep declines for economically sensitive home builders, semiconductor manufacturers, small caps, retail and private equity.
Global growth expectations plunged to record lows in April among investment fund managers surveyed by Bank of America, according to a separate report published Monday.
That survey also showed profit expectations among investors tumbled to their weakest level since March 2020. closing in on levels seen during other scares including the 2008 collapse of Lehman Brothers and the 2001 bursting of the dot-com bubble.
Last week, Deutsche Bank became the first major bank to forecast a recession. The bank expects the Fed will push the economy into a “mild” downturn that begins in late 2023.
Will Crypto Perform Better in Recession Shock?
In the event the economy is headed in that direction of another recession, crypto is expected to outperform traditional assets along with the alternative asset basket. In other words, crypto and commodities will do better than stocks and bonds.
As the Federal Reserve continues to tighten its monetary policies and tease a rate hike, stocks are showing a downward trend. Earlier this year, several analysts, including commentary from the IMF, acknowledged the highest ever correlation between the stock and crypto markets.
If we look at the composition of the American investors, a recent survey by eMoney Advisor had found that 65% of citizens are actively investing. While 48% of these American investors have bought stocks, 43% are crypto investors in the second spot.
This means, that even regulatory hurdles could be enough to deter investors from holding the novel asset class. Recently, Federal Deposit Insurance Corporation (FDIC) had also flagged risks of crypto and related activities to the US banks.
Indeed, as regulatory uncertainty continues around crypto, the demand of a wider audience might remain limited, meanwhile, paying mind to the fact that the appreciation of the asset class cannot be guaranteed.
Bottom Line
Given the inflation picture continues to look grim, a repeat episode isn't out of the question, despite the record rally that Bitcoin and many other cryptocurrencies witnessed in October-November had tumbled by the end of December. .
