Five months into the year and we are still debating whether the Fed’s rate hikes will land us into a recession. And if it does happen, when could it be expected to set in and how bad could it be?

"I don't think anyone knows whether we're going to have a recession or not," Fed Chair Jerome Powell has said. "And if we do, whether it's going to be a deep one or not... it's not knowable."

Former Treasury Secretary Larry Summers had duly warned us last year that President Biden's proposed $1.9 trillion stimulus package was too large, the obvious result would be high inflation. And of course, that would mean rate hikes that potentially send us into a recession. That’s how it has played out in the past. However, economic experts are divided on the issue this time.

There’s one group that thinks the economy is strong enough to avoid a recession. They’re the ones pointing to the low unemployment rate. They expect the Fed’s actions to be moderate, especially after the bank failures earlier this year.

The other side believes a recession is inevitable. They’re the ones saying that inflation is still too high, especially core inflation, which could drive the Fed to raise rates further.

Goldman Sachs is leaning on the view that there will be a recession.

GS has raised concerns that the high consumption rate would tend to boost the GDP, thus prompting the Fed to raise rates more than anticipated. Analyst Spencer Hill said, “We see a significant risk that consumption will grow at an above-potential pace in 2023, in spite of a likely rebound in the saving rate.”

Therefore, he believes that “If consumption growth indeed picks up to around +2.5 per cent this year and GDP growth is tracking closer to +2 per cent as a result, our rule of thumb implies that the Fed could approximately offset this by delivering an additional 50 basis points of unanticipated hikes – above and beyond market pricing – to a peak Fed Funds range of 5.75 – 6%.

"...In the blue-sky scenario where consumption, manufacturing and housing all accelerate -- which is further from our base case -- the underlying strength in demand would threaten to raise 2023 GDP growth to +2.5 per cent. In that world, an even larger increase in the funds rate might be required to keep demand growth below potential and labor market rebalancing on track.”

However, the prediction for May proved incorrect and may have been attributable to the bank collapses and resultant caution from the Fed rather than a reading of the market situation: “While a step down to 25 bps is still possible in May, we no longer view it as the baseline… and maintain our view that the Governing Council will maintain the peak rate until the fourth quarter of 2024.”

KPMG Economics is predicting a mild recession for a brief period of time. The expectation is for an unemployment rate of 5.3%, which would still be far below the 10% level reached after the 2008 financial crisis.

In its Global Economic Outlook (GEO) report, Fitch Ratings upgraded its outlook on the global, as well as the U.S. economy. In fact, the outlook for the world’s growth (raised from 1.4% to 2.0%) was attributed to China’s reopening, the easing of the European natural gas crisis, and the “surprising near-term resilience in US consumer demand.”

But while admitting that the U.S. economy has more near-term momentum than was previously anticipated, fueled by employment and consumption, household income, and savings buffers from the pandemic days, it maintains that core inflation remains “stubbornly high.” Therefore, “the Fed and ECB have become more concerned about inflation becoming entrenched.” It therefore believes that “the impacts of rate hikes on the real economy still lie ahead and are likely to push the US economy into recession later this year.” The recession is expected to be mild by historical standards.

And so, we are no wiser than we were earlier on what is likely to happen. The only consensus seems to be that if there’s a recession, it is likely to be mild. One good investment strategy in such a situation would be to preserve capital, so you can buy the stocks you’ve been eyeing when the dip arrives. Here are a few suggestions:

Celsius Holdings, Inc. (CELH Quick QuoteCELH - Free Report)

Boca Raton, FL-based Celsius develops, processes and sells functional drinks and liquid supplements such as carbonated and non-carbonated energy drinks; dietary supplements in various fruity flavors; and branched-chain amino acids functional energy drink for muscle recovery. It also offers a powdered form of the active ingredients for functional energy drinks in individual On-The-Go packets and canisters; non-carbonated functional energy drinks; and ready-to drink products.

Analysts expect the company to generate revenue growth of 67.9% this year and 35.9% in the next with earnings growing a respective 152.9% and 64.9%. The 2023 estimate has increased 30 cents (27.5%) and the 2024 estimate 40 cents (21.1%) in the last seven days. Zacks has a #1 (Strong Buy) rating on the stock. All of the covering analysts are also recommending the shares.

Arcos Dorados Holdings Inc. (ARCO Quick QuoteARCO - Free Report)

Montevideo, Uruguay-based Arcos Dorados has the exclusive right to own, operate and grant franchises of McDonald's restaurants in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curacao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela. The company was founded in 2007.

Analysts currently expect the company to grow revenue and earnings by 13.4% and 0.0%, respectively in 2023 with 2024 bringing in 7.7% revenue growth and 14.0% earnings growth. In the last 30 days, estimates for the two years have increased 3 cents and 6 cents, respectively. What’s more, all the analysts covering the stock have a buy rating on it. Zacks has a #1 (Strong Buy) rating on the shares.

Copa Holdings, S.A. (CPA Quick QuoteCPA - Free Report)

Panama City, Panama-based Copa Holdings provides airline passenger and cargo services. It has approximately 327 daily scheduled flights to 78 destinations in 32 countries in North, Central and South America, as well as the Caribbean from its Panama City hub. As of December 31, 2022, it operated a fleet of 97 aircraft comprising 67 Boeing 737-800 Next Generation aircraft, 9 Boeing 737-700 Next Generation aircraft, 1 Boeing 737-800 Boeing Converted Freighter, and 20 737-MAX aircraft.

Analysts expect the company to grow its revenue by 13.6% in 2023 and 3.2% in 2024. Earnings are expected to grow 52.5% and 3.3%, respectively. The Zacks Consensus Estimate for 2023 has increased 34 cents (2.8%) in the last seven days. The estimate for 2024 has increased 35 cents (2.8%) in the same period. Zacks has a #1 rating on the shares. All the covering analysts also have Buy ratings on them.

Lantheus Holdings, Inc. (LNTH Quick QuoteLNTH - Free Report)

Bedford, MA-based Lantheus develops, manufactures and sells diagnostic and therapeutic products that facilitate the diagnosis and treatment of heart, cancer and other diseases worldwide.

Brokers are extremely optimistic about the company right now, and all of the covering analysts are recommending the shares. They’ve also raised their 2023 earnings estimates by 13.1% and 2024 estimates by 11.7% in the last 30 days. These numbers are representative of 34.6% revenue growth and 32.7% earnings growth this year followed by 10.2% revenue growth and 9.5% earnings growth the following year. Zacks has a #1 rating on the shares.

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