Inside Markets — Resilient Growth Backdrop

Most of the ‘hard data’ is still aligned with a resilient growth backdrop, but sell-side firms have reduced their US GDP estimates for ’25 based on bleak consumer sentiment and downbeat purchasing manager surveys.  Most sell side firms have their 12-month recession probability in the 30-40% range currently.  Credit spreads have widened over the past week with Investment grade spreads aligned with ~19% and high yields spreads showing a ~15% probability of a recession in the next 12 months.  Fed rate cut expectations over the last week have also shifted to a total of three 25bp cuts from two.  Tomorrow brings the March ISM manufacturing (purchasing managers) Index, which is more about direction of travel than absolute levels.  Consensus is looking for the index to slip into contraction at 49.5, down from 50.3 in February. Thursday’s ISM services report will also provide color, while Friday’s Jobs Report will close out the week and establish the macro narrative into Q1 earnings season which kicks off with large cap banks on April 11.  Whether or not the US goes into a recession is critical for the equity outlook given that past corrections and recession avoidance since 1950 has generated an average one-year return >12%.