Two of the most optimistic investment firms, BMO Capital Markets and Deutsche Bank (NYSE:DB), are forecasting a recession in the U.S. economy despite the consensus of continued growth and solid stock gains.

What Happened: The firms predict a downturn in economic growth by the end of 2024, yet they also anticipate a 12% rise in the S&P 500 to 5,100. This growth is expected to be driven by earnings rather than rate cuts.

"Rates don't peak for good reasons — they peak for sad reasons for equity investors," said Chris Grisanti, the chief equity strategist at MAI Capital Management, in a conversation with CNBC last month. 

BMO anticipates a 13.6% earnings growth, describing the situation as a "recession in name only," while Deutsche Bank expects double-digit profit growth even in a weaker economic backdrop.

In 2023, the outlook on economic growth has changed, as investors now view robust financial indicators as a possible risk to stocks, given their potential impact on sustaining elevated interest rates.

As reported by Business Insider, weaker economic indicators have conversely been seen as justifications for fewer rate hikes and possible rate cuts.

Also Read: Federal Reserve To Implement Six Rate Cuts In 2024 Amid Economic Slowdown, Says ING

In a note, Brian Belski, BMO's chief investment strategist, emphasized the resilience of the labor market, stating, "Labor market data continues to remain remarkably resilient, and employment levels are what almost always determine how good or bad things get in the economy from our perspective."

However, Binky Chadha, Deutsche Bank's U.S. equity strategy chief, said he believes that a mild recession is already priced into stock valuations.

For 2024, BMO favors the financials and information technology sectors, while Deutsche Bank recommends an overweight position in financials, materials and consumer cyclicals.

Chadha, however, advised caution with defensive sectors until bond yields fall and maintained a neutral stance on tech stocks due to their stretched valuations.

Now Read: US Banks Witness Whopping $100 Billion Deposit Drop In Just Three Weeks, Fed Survey Raises Alarm

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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