CPI, Fed, and Recession

1. Goldman Sachs has raised the risk of a U.S. recession to over 40%.

2. PPI data continued to decline (up 2.2% YoY; core PPI up 3.3%). Ahead of today’s CPI report, the market is betting on a Fed rate cut in September.

3. JPMorgan sees rising recession risk across asset classes, with 5-year Treasuries and base metals being the most vulnerable, while high-credit and high-yield bonds may perform better. Small caps like Russell 2000 and cyclical/defensive stocks have lower recession risks.

4. Despite rising recession odds, expectations for a September rate cut have grown. The market is pricing in a 40 basis point cut, with over 100 bps expected this year. Although tech stock overvaluation has caused recent crashes, a full collapse seems unlikely. Analysts suggest the market may not hit new highs, but it’s also unlikely to completely fall apart.