{"id":60417,"date":"2022-07-10T20:54:12","date_gmt":"2022-07-11T03:54:12","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=60417"},"modified":"2022-07-15T22:56:35","modified_gmt":"2022-07-16T05:56:35","slug":"why-wall-street-wants-a-recession","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2022\/07\/10\/why-wall-street-wants-a-recession\/","title":{"rendered":"Why Wall Street Wants A Recession"},"content":{"rendered":"\n

That sigh of disappointment was Wall Street looking for signs of a weakening labor market in the June jobs report<\/a>. Instead, that report showed job creation remains robust in the economy. Not only did the unemployment rate remain steady at a low 3.6% with the economy adding 372,000 jobs (far more than “consensus” expectations), the number of people working part-time involuntarily plunged in June and fell to levels last seen in 2001<\/a>. Thus, the Federal Reserve has every reason to proceed as planned with its normalization of monetary policy.<\/p>\n\n\n\n

This tightening of monetary policy has helped send the stock market into a bear market<\/a>. Getting out of this rut will largely depend on when the stock market thinks the Fed will get to the end of normalization and perhaps even the timing of the next rate-cut cycle. In recent times, economic troubles have pushed the Fed to cut rates. Wall Street wants a recession as one of the quickest ways to convince the Fed to end normalization earlier than scheduled. A recession could end the inflation threat and make the Fed comfortable returning to easy money policies. Currently, the Fed Fund Futures have priced in an end to the tightening cycle in June, 2023 with a subsequent rate cut.<\/p>\n\n\n\n

\"The<\/a>
The meeting probabilities indicate peak Fed rates in June, 2023 and a rate cut the following month (follow the blue squares)<\/em><\/strong> (Source: CME FedWatch Tool<\/a>)<\/figcaption><\/figure>\n\n\n\n

Wall Street does not want a recession for the pain it inflicts on the real economy. Instead, Wall Street wants a recession for the benefits that accrue to the financial economy. As the Fed responds to a recession with easier money policies, bond yields fall and money gets cheaper, both are conducive to higher stock prices (absent other negative shocks). Just as the stock market has crumbled in anticipation of economic turmoil, the stock market will bottom and turn around well ahead of actual improvements in the economy. Eventually, stocks may even benefit from a real economy made more efficient and more profitable by difficult business choices made during a recession. <\/p>\n\n\n\n