Markets are already pricing in a recession

ON UK INCOME

Over the long-term equity markets follow corporate profits, which in turn follow the direction of economies.

Given the precipitous falls in equities over the past few months we would argue markets are already pricing in a fair degree of earnings contraction, which would be consistent with recession. Recessions typically follow a period of strong economic growth where optimism among companies and consumers is high, as evidenced by high levels of investment in capacity, robust employment and healthy wage growth. Today none of these factors are present and we are not awash with excessive levels of exuberance. The key risk to economies has been a continued lack of coordinated response from Europ...