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Recession will hit in first half 2023, the Dow is headed lower: CFOs


Traders are on the New York Stock Exchange (NYSE), in New York City.

Brendan McDermid | Reuters

Wall Street stocks pickers and economic forecasters alike have been clear about their views on inflation and Federal Reserve’s policy response. They believe that the economy and markets are going to get worse before it gets better. According to CNBC CFO Council’s latest survey, many chief financial officers of top-ranking companies are in agreement with their conclusions.

Inflation is cited by more than 40% chief financial officers as their number 1 external risk. The number one external threat to their businesses is inflation. If you dig deeper into the Q2 survey results, it becomes clear that the link between food prices and geopolitics, as well as the impact of inflation on their outlook, are evident in the ranking by the C-suite. CFOs identify Federal Reserve policy at nearly 25% of their business risks. As the Biden administration struggles to find ways of increasing oil supplies and Russian ships carry seized Ukrainian wheat, amid worries about severe food insecurity, 14% of CFOs named the Russia-Ukraine conflict as their No. 1. 1. Business risk. 

However, CFOs don’t always agree with the Fed not being able to curb inflation. About half (54%) of CFOs express confidence in central banks, though that doesn’t change the fact that they are unsure about the direction current economic conditions and policies are leading: to a recession. 

A majority of the CFOs who responded to the survey (77%) predicted that there will be a recession during 2023’s first half. CFOs have not predicted a recession in the second half next year. CFOs also don’t believe the economy can avoid one.

The CNBC CFO CouncilThe Q2 survey provides a snapshot of current financial outlooks among chief financial officers. This survey was done among 22 chief financial officer at large organizations, between May 12th and June 6.

The 10-year TreasuryAccording to 41% CFOs, the 2% has doubled to 3% this year and is likely to hover around 4% by 2022. The same percentage of CFOs anticipate the 10-year rate to remain at 3.49% through year-end. There is some concern that rates could rise even faster, as a handful of Council members forecast a 10-year with an increase above 4%.  

On Thursday, the European Central Bank stated that it would raise rates for the first time in over a decadeAs its inflation outlook increased substantially.

The global and U.S. economies are experiencing a decline in growth prospects. Atlanta Federal Reserve’s GDPNow Tracker is forecasting a second consecutive quarter of negative growthThe World Bank is the classic definition of recession. Just the World Bank slashed its global growth outlookThe Organization for Economic Cooperation and Development warned of the possibility that there will be a period in which stagflation is similar to those experienced in 1970s. Its president David Malpass said, “For many countries it will prove difficult to avoid a recession.” Also, the Organization for Economic Cooperation and Development cut its prediction for global growthThis is the year.

CFO views of the stock market’s future are changing due to rising rates and elevated inflation. The survey shows that the CFO outlook is lower.

The overwhelming majority (77%) of CFOs believe that the Dow Jones Industrial AverageTo fall below 30,000 would mean that the current high will be broken. This would result in a drop of more than 18%. Even though each bounce might be “dead cat”, more than half (55%) of CFOs agree that the current leader will continue in his spot. In other words, energy will experience the highest growth of all the sectors over the next six month. 

Mohamed El-Erian stated that anyone who is fully invested should take some chips out of the table. an interview with CNBC’s “Squawk Box”This week, earlier.

Last Wednesday, JPMorgan Chase CEO Jamie Dimon issued a warning about the economy and said “brace yourself.”

However, CFOs have a common point of view that is clear: Many corporations plan beyond short-term headwinds. In the results of the survey, there is an interesting tug-of war between a worsening outlook as well as indications by many companies that they have not cut their spending and hiring. The tech industry has been making headlines about slowing down or freezing new hires and pulling out job opportunities, but the CFO Council members aren’t going to be afraid. 36 percent of CFOs say they’ll increase or decrease their spending within the next 12 months, and 46 percent say they’ll maintain existing spending. Firms are still hiring, with 54 percent of them predicting an increase in headcount over the next twelve months. Only 18% expect a decline in staff.