Bank Of America Economist Predicts Unlikely Recession Amid Market Chaos

A Bank of America building is seen in Los Angeles Bank Of America

The stock market experienced significant turbulence recently, with concerns about a potential recession looming large. The S&P 500 closed 3% lower on Monday, while the Dow dropped 2.6%, marking the third consecutive day of losses. The VIX, Wall Street's fear gauge, briefly breached 50 on Monday morning, a level not seen since the onset of the COVID-19 pandemic in March 2020.

Despite the market chaos, Bank of America's chief US economist reassured investors that a recession is highly unlikely. He dismissed the need for an emergency rate cut by the Federal Reserve, citing three reasons for the market's perceived overreaction to recent economic data.

One factor contributing to the lackluster jobs report was Hurricane Beryl, a Category 5 storm that hit the Gulf Coast in July. The storm led to 436,000 people being employed but unable to work due to bad weather, significantly higher than the historical average. This disruption impacted payroll recording and led to temporary layoffs, skewing the job numbers for the month.

Dow Jones dropped 2.6%, marking third day of losses.

Stock market saw significant losses, S&P 500 down 3%.

VIX fear gauge hit 50, highest since start of COVID-19 pandemic.

Another concern was the triggering of the Sahm Rule recession indicator, which suggests an economic downturn when the unemployment rate rises by a certain margin. However, the economist pointed out that the rise in unemployment was not due to job layoffs but rather an increase in labor supply driven by immigration.

Furthermore, the recent drop in the ISM manufacturing index, a key indicator of economic activity in the manufacturing sector, raised alarms on Wall Street. However, the economist argued that the decline in manufacturing output is not a reliable predictor of recession risk in the current economic landscape, where services play a more significant role.

Overall, the economist emphasized that the economy remains resilient and is unlikely to enter a recession. While a rate cut is anticipated in the near future, he believes that an emergency cut is unwarranted based on the current economic conditions. The recent market volatility, according to him, is an exaggerated response to the available economic data.