Stock-market investors face 3 recession scenarios in 2023

With the U.S. stock market on track for its biggest annual decline in over a decade, fears that efforts by the Federal Reserve and other major central banks to bring down a surge in inflation will spark a major economic slowdown have moved front and center as the calendar flips to 2023.

Here are three recession scenarios for an economic slowdown and the potential market reaction:

A shallow and brief recession

Many analysts think the economy has enough inertia to grow slowly at least through the first half of 2023. 

“To be sure a severe recession would be bearish for stocks yet given the resilience of the U.S. economy and the tight labor market, we are expecting a slowdown or shallow and brief recession,” said Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments. “That could allow stocks to rally in the second half of 2023 (after a volatile Q1) as they look around the recession corner.”

Tengler said that the current market consensus is too pessimistic because the consumer still has bandwidth and spending will hold up better than the naysayers predict in the tight labor market. 

U.S. employers hired more workers than expected in November and raised wages, shrugging off most worries about a recession. The November jobs report showed the economy gained 263,000 jobs last month, topping Wall Street expectations, with the unemployment rate holding steady at 3.7%, remaining close to a half-century low.

However, job growth is expected to…

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