Morgan Stanley: If there is a recession in the economy, it will be less destructive than the 2008
Previous crises were associated with lending, the current one with inflation.
Morgan Stanley Chief Investment Officer Lisa Shalette believes a downturn in the stock market is increasingly likely - especially after the Fed raised rates by 75 basis points. Even so, the crisis will be "less disruptive" to corporate earnings than other crises.
In addition to the recession in the economy in 2020 due to the pandemic, other crises, including the global economic crisis of 2008 and the bursting of the dot-com bubble in the 2000s, have been linked to lending. In these cases, debt-related surpluses accumulated in housing and internet infrastructure, and it took decades for the economy to recover.
In the current situation, the catalyst for the downturn is not debt, but excess liquidity. Covid-19-related fiscal and monetary stimulus pumped money into households and the investment market, fueling inflation and financial speculation.
Historically, downturns caused by inflation have not affected profits as much. For example, during the inflation-driven recessions of 1982-1983, when the Fed raised the rate to 20%, and 1973-1974, when the rate reached 11%, profits for S&P 500 companies fell by 14% and 15%, respectively. In 2008, the fall was 57%, in the 2000s - 32%.
The fact that the recession will not be so strong is also indicated by other factors - fairly strong housing and automobile markets, stable dynamics in the labor market. Also, the balance sheets of banks, companies and ordinary people are in the "best in a decade" condition, and corporate earnings may be more resilient.