US stocks weathered the banking disaster to post solid gains in the first quarter. Some investors say that performance could come under pressure in the event of a widely expected recession, according to Archyde.com.
Wall StreetPhoto: Vichaya Kiatying-Angsulee / Panthermedia / Profimedia Images
The benchmark S&P 500 posted a 7 percent gain for the first quarter that ended Friday, rebounding from a nearly 20 percent decline in 2022.
The Nasdaq Composite’s 16.8% first-quarter jump was the biggest quarterly gain of 2020.
Cautious investors say the gains leave stocks more vulnerable to an economic slowdown, also driven by turmoil in the banking sector after the collapse of Silicon Valley Bank this month.
Many point to stock valuations, which remain high by historical standards, while arguing that corporate earnings could have a long way to go in the event of a recession.
The extent to which a possible recession has been factored in – and whether the economy will experience one – has been a point of contention on Wall Street.
Strong data since the start of the year supported hopes that the US will suffer only a mild recession or avoid one altogether, despite several rate hikes by the Federal Reserve.
This month’s turmoil in the banking sector reignited concerns as some analysts said stress on lenders could weigh on the economy just as the Fed’s monetary tightening begins to take hold.
This has led investors to look again at key indicators such as companies’ earnings. While profit estimates are already pessimistic for the coming quarters, some believe they could fall further if a recession hits.
S&P 500 earnings for the first quarter are estimated to have fallen 5% from a year earlier, followed by an expected 3.9% decline in the second quarter, Refinitiv data shows. During recessions, however, earnings collapse by an average of 24 percent a year, according to Ned Davis Research.
US companies will begin reporting first-quarter results in the coming weeks.