Is a recession coming in 2025 stocks?

The Recession Rerun? Economists Dial Back 2025 Downturn Predictions

For months, the shadow of a potential recession looming in 2025 has hung over the stock market and the broader economy. Fueled by persistent inflation, rising interest rates, and geopolitical uncertainties, many economists predicted a significant downturn. However, the latest whispers coming from economic circles are suggesting a change in the weather.

Bankrate’s most recent quarterly Economic Indicator Survey reveals a notable shift in sentiment. The survey indicates that only 26% of economists now believe a recession is likely to hit by the end of 2025. This figure represents a significant decrease compared to previous quarters, marking a new low in recession predictions for that timeframe.

So, what’s behind this newfound optimism? Several factors likely contribute to the evolving outlook:

• Resilient Consumer Spending: Despite inflation, consumers have largely continued to spend, buoyed by a strong labor market and pent-up demand. This sustained spending has helped keep the economy afloat and defied earlier predictions of a sharp contraction.
• Cooling Inflation: While still above the Federal Reserve’s target, inflation has been gradually cooling down, suggesting that the central bank’s aggressive monetary policy is starting to take effect.
• Strong Labor Market: The unemployment rate remains low, indicating a robust job market that provides a safety net for the economy. This strength fosters consumer confidence and reduces the likelihood of a widespread economic downturn.
• Adaptable Businesses: Businesses have demonstrated adaptability by adjusting to inflationary pressures, managing supply chain disruptions, and finding innovative ways to maintain profitability.

What Does This Mean for the Stock Market?

The revised recession outlook could provide a boost to the stock market. Lowered recession fears often translate to increased investor confidence, leading to greater risk appetite and potentially driving stock prices higher. Sectors that are particularly sensitive to economic cycles, such as consumer discretionary and industrials, could benefit significantly.

However, Caveats Apply:

While the latest survey offers a more positive perspective, it’s crucial to remember that economic forecasting is an inexact science. The economy remains vulnerable to unforeseen shocks, such as escalating geopolitical tensions, a resurgence of inflation, or unexpected financial crises.

Furthermore, the fact that 26% of economists still anticipate a recession by the end of 2025 highlights the underlying uncertainty. A significant minority still believes a downturn is possible, and their concerns should not be dismissed.

The Bottom Line:

The decrease in recession predictions for 2025 is undoubtedly encouraging. It suggests that the economy may be more resilient than previously anticipated. However, investors should remain cautious and avoid complacency. A diversified portfolio, a long-term investment horizon, and a close eye on economic indicators are essential for navigating the ever-changing economic landscape. While the looming recession may have been pushed further down the road, the possibility of a downturn remains a factor to consider.