Why there's a 'fine line' between below-trend growth & recession

Recent market volatility and the rise in the unemployment rate sparked fears of a potential recession. In this episode of Stocks In Translation, Yahoo Finance senior reporter Alexandra Canal, along with Yahoo Finance producer Sydnee Fried, sit down with Michael Darda, chief economist and macrostrategist at ROTH, to discuss the state of the economy and recession fears. "What's unfolding now actually makes a lot of sense to me," Darda says. "It's just been a rocket ship since the fall of 2022. And... we went almost a year without a 2% pullback until the volatility started in the middle of July of this year. So this is actually more normal than what we were dealing with before." "The consensus view before the volatility storm hit this summer was soft landing, smooth sailing," Darda explains. "What ends up happening is," the word recession "is sort of thrown out there anytime... the stock market starts to stumble." On the unemployment rate, Darda says, "the problem... is that... we're up to 4.3 from a cyclical trough of 3.4. Those kinds of movements and the level tell us that the economy, if it's still growing is... growing below trend, below the growth rate of potential. There's an exceptionally fine line between that and an actual contraction recession." "Most investors really should play a... slow and steady game where they're diversified, but they don't react... to market swings. Because what tends to happen is you don't realize that a market swing has taken place until it's largely over... Our view has been to stick with the more defensive sectors of the S&P 500 (^GSPC)." Darda adds that "we're probably in an environment now where volatility is going to stay elevated. The risk of a more material pullback and or correction is quite high. That will also bring opportunities... I think we're gonna be in, in choppy waters for a little bit." Find more episodes of Stocks in Translation here.
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