The stock market is almost always late to wake up to the threat of recession, but it’s increasingly hard to miss the warnings from the Federal Reserve. Not only might there be a recession, but the Fed has no intention of stepping in to save investors this time.
The problem is one I’ve been banging on about all year: Investors still aren’t factoring in much threat to earnings, even though recessions almost always hit earnings hard. Instead, most of the fall in stock prices has been due to rising rates lowering valuations. There’s been an acceptance of slightly lower earnings for this year, at least when the oil windfall boosting energy companies is excluded, but Wall Street continues to predict decent profit growth next year.
