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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.

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