For the past week, most of the United States has been pondering an important question as recession fears continue to spread: How worried should we be?
On Monday, many prominent stocks plunged significantly as a mass selloff swept over markets. Market data from Dow Jones shows that the tech sector leaders that comprise the “Magnificent Seven” shed a collective total of $653 billion in market capitalization during just one trading day.
When sector leaders collectively fall, many of their smaller peers tend to follow. And when the jobs report for July 2024 came in weaker than expected, pressure instantly began to mount for the Federal Reserve to enact an emergency rate cut. But it seems more likely that the next one will come in September. Although many stocks have rebounded since then, recession fears continue to spread. Yet multiple experts have stressed that the U.S. economy isn’t actually heading into a recession at all, as grim as market conditions may appear.
Are Recession Fears Overblown?
Since Monday’s selloff, plenty of stocks have rebounded and are back in the green, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA). The fact that many companies have bounced back so quickly indicates that many recession fears, like the selloff, may have been premature. This is further supported by the fact that jobless claims fell over the past week, suggesting that the July report may not have had the wide-ranging negative implications that some assumed.
Some experts have also suggested that recession fears have been overblown. Torsten Sløk, chief economist at Apollo Global Management, recently told Yahoo Finance that “[a]cross the board, there is just not much evidence of the economy either being in a recession or being on its road to entering a recession.” He also referenced data that showed healthy consumer spending in plenty of key areas.
Sløk isn’t the only expert to suggest that the U.S. is not entering a recession. Stephen Brown, an economist from Capital Economics, predicts that a soft landing is the most probable outcome for where the U.S. is headed. Economic columnist Catherine Rampell of The Washington Post recently discussed overblown recession fears, stating;
“Sure, other recently released economic indicators — including those most often used to assess whether we’re in recession, such as consumer spending — have suggested our ultrahot economy is cooling. But they’ve basically been fine. In fact, gross domestic product growth for the second quarter came in stronger than expected. So there is a reasonable chance that Friday’s employment report was not as bad as it seemed on the surface and there will be some reversion back to the mean next month.”
What Comes Next
For investors, there is still a fair amount of uncertainty clouding financial markets. When words like “recession” and “selloff” start trending, it’s easy to be scared and to panic. But as this week has taught us, recession fears can also spiral out of control, making a problem seem worse than it is.
However, as Rampell highlighted, even if the previously hot economy is cooling off, there’s little reason to assume that things are bad enough to send us into a full-blown recession. As bad as things looked on Monday, most stocks are already back in the green and rising steadily. It really does seem like the previously predicted soft landing is still not only possible but likely.
On the date of publication, Samuel O’Brient held a LONG position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in NVDA.
