One of the biggest concerns weighing on the SPDR S&P 500 ETF Trust (NYSE: SPY (NYSE:SPY)) in 2022 is that inflation and rising interest rates will trigger a U.S. economic recession.
With the second quarter now complete, it's possible the U.S. is already in a recession if second-quarter GDP growth was negative. However, Bank of America (NYSE:BAC) economist Ethan Harris said Wednesday that even if the U.S. meets the technical definition of a recession, it isn't necessarily the end of the world for investors.
What Is A Recession? A recession is defined as at least two consecutive quarters of negative GDP growth. Harris said the U.S. economy likely expanded in June, even if second-quarter GDP growth was negative overall.
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"True, as a rough rule of thumb, two negative GDP prints in a row is sometimes called a 'technical' recession. However, in this case, the weakness is being driven by dramatic swings in the two most erratic parts of GDP accounting — inventories and trade," Harris said.
In fact, if you smooth out GDP data from the fourth quarter of 2021 through the second quarter of 2022, Harris said you'd likely see average GDP growth of about 2%.
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Why It's Important: Investors won't know if the U.S. economy is in a recession until the National Bureau of Economic Research officially announces a recession. Fortunately, U.S. economic recessions vary widely in impact and duration. The most recent U.S. recession occurred in 2020 and lasted just two months, whereas the recession that transitioned into the Great Depression lasted 43 months, from 1929 to 1933.
Regardless of whether or not the U.S. economy is already in a recession, Harris is expecting the Federal Reserve to issue another 0.75% interest rate hike later this month.
Benzinga's Take: The Atlanta Fed's GDPNow forecasting model is currently projecting U.S. GDP growth fell 2.1% in the second quarter, which would mean the U.S. economy is already technically in a recession. However, while the word "recession" may spook some investors, the latest inflation data and comments from the Federal Reserve provide far more insight into where the U.S. economy (and the stock market) could be headed in the second half of the year.
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