Wall Street has gone from fears of a recession for more than a year to a belief that a recession may not actually happen. In recent days, some experts have said the U.S. could avoid a recession even with a string of rate hikes, consumer weakness and a marked tightening in credit conditions. “It takes a lot of guts to short the U.S. economy,” Morgan Stanley CEO James Gorman told CNBC’s Leslie Peake in a live interview on “Squawk on the Street” that aired Tuesday. “Bank balance sheets are strong, personal balance sheets are strong. The period of rate hikes is coming to an end. Earnings are generally more positive.” At this point, the outgoing executive said it doesn’t matter if the U.S. is in a technical recession . “It’s important that if there’s a deep recession, the unemployment rate would change, and that’s not happening,” he said. The “recession is not going to happen” sentiment appears to be spreading. Goldman Sachs lowered its recession probability outlook to 20% from a high of 35%, as they believe dark clouds forming over the domestic economy are beginning to lift. This happened even though the yield curve, a sign of a recession, remains deeply inverted. Goldman Sachs economist Spencer Hill said: “In early March, we highlighted the risks that economic growth could improve in 2023, given the fading headwinds from monetary and fiscal policy tightening, strong consumer income growth, and the potential for housing and manufacturing to hit the bottom line. Bottom.” Note from customer. “While the bank failures in the spring appear to have reduced the likelihood of such an outcome, our review of official and alternative data suggests that such a rebound in growth could happen anyway,” he added. “If so, third-quarter The strong start to momentum will help offset the growing drag from a drawdown in bank lending that has stalled in recent weeks.” To be sure, Goldman Sachs isn’t expecting strong growth — the firm expects a fall this year. Half-year gross domestic product (GDP) will grow at an annualized rate of 1.1% – but it does see enough signs, as the title of Hill’s report pointed out: “Has growth picked up?” The feeling Boosted by a sharp pick-up in domestic demand, domestic demand grew at an annualized rate of 2.6% in the second quarter. The firm also pointed to signs that the manufacturing sector, which has been in contraction for months, is finally bottoming out. Hill also noted that home sales “are no longer in a straight line,” but are falling gradually, offering some hope for the sector. While Tuesday’s retail sales report disappointed, with a monthly gain of 0.2% below the consensus estimate of 0.5%, most other data was good. In fact, the Citi Economic Surprise Index, which measures actual data versus expectations, is near its highest level since mid-March 2021. Investors are still expecting the Fed to raise its benchmark interest rate when it meets next week. But Gorman said this could be the last rate hike in 2023. Chicago Fed President Austan Goolsbee is among those who think the economy can avoid a recession even with a 5 percentage point rate hike from March 2022. In a recent CNBC interview, Goolsbee spoke of Wall Street professionals begrudgingly noticing a “golden path” that the central bank would “succeed (to lower inflation) and do it without falling into a recession.” It will be a victory.” Bank of America’s July survey of global fund managers showed a shift in recession expectations. While 48% still see a global recession by the end of the first quarter of 2024, those expecting no recession climbed to 19%, up 5 percentage points from June. Finally, the proportion expecting a “soft landing” for the economy rose to 68%, compared with 21% who see a hard landing.