This is why averting a US recession would actually be a “treacherous” scenario for the stock market.

  • A recession-avoiding US could actually be terrible for stocks, TS Lombard said.
  • This is because the Fed is likely to keep interest rates high in a no-landing scenario, putting pressure on equities.
  • Fed officials aggressively raised interest rates last year to control inflation, which sent the S&P 500 down 20%.

This week, TS Lombard warned that recession-avoiding US would actually be “treacherous” for stocks.

According to the research firm, investors could actually face big losses if the economy runs in a no-land scenario, meaning the US avoids a slowdown and recession and instead stays strong.

That’s because the Federal Reserve is likely to keep interest rates high, while central banks traditionally cut interest rates by at least 200 basis points when facing a recession, strategists say.

Fed officials have already raised rates by 450 basis points over last year to curb high inflation. This caused the S&P 500 to lose 20% in 2022. While most analysts had forecast interest rates to hit 5% this year, strategists estimate rates could rise to 6.5% if the US avoids a recession.

Far from being a benign scenario, a ‘denied landing’ scenario could prove treacherous for investors, bringing back the market conditions that have prevailed for much of 2022. The market will return to trying to keep up with ever-increasing terminal rate expectations. is likely to result in a prolonged downgrade for the stock, which will wipe out much of the many expansion shares that have been enjoyed since last October,” TS Lombard said in a note on Wednesday.

The market has already retracted some of its year-to-date gains as investors look to further rate hikes, with rates also staying higher for longer.

For its part, TS Lombard believes that the US could enter a mild recession by mid-year, echoing the predictions of other Wall Street analysts. This is because economic data for February could show a much weaker economy, which could also quickly slide into recession, strategists said.

A slight decline could force the Fed to cut interest rates to 3% by the end of the year, easing financial conditions and lifting stocks.

Other bullish market commentators have made the case for rate cuts, which will make for a good year for equities. Fundstrat’s Tom Lee said Fed officials could backtrack on efforts to tighten monetary policy and no longer “pressure the market” this year, which could lift the S&P 500 to a retest of its all-time high.

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