The current economic consensus holds that a recession will likely be avoided over the next year, despite rising concerns. However, the market’s collective outlook has proven wrong in the past. Could the prevailing optimism once again overlook growing risks?
Most forecasts see US GDP growth slowing in 2023 but remaining positive, fueled by still-resilient consumer spending. The expected soft landing relies on inflation steadily declining without the Fed needing to aggressively tighten policy further.
Yet many prior recessions emerged despite sanguine predictions. The 2020 pandemic-driven downturn is a prime example. Just months before, few predicted the record economic contraction that would follow global lockdowns.
Likewise, the 2008-2009 Great Recession caught markets by surprise. Upbeat growth projections in 2007 missed how severely housing and credit bubbles were already unraveling.
Now, numerous caution signs are again flashing, from inflation and yields to profits and sentiment. Still, optimism persists that the economy will navigate risks. History shows, however, that when cycles turn, new eras begin abruptly.
While no outcome is guaranteed, unforeseen shocks could easily tip today’s precarious economy into recession. Rather than complacency, preparing prudently may prove wise. A flexible stance allows properly positioning if and when dynamics darken.
The consensus view offers a baseline outlook. But openness to alternative scenarios can help safeguard capital. As in the past, the majority opinion may again discount building instabilities. Staying alert and anticipative remains key.
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