'Profit recession' warning as markets wait for aggressive central bank moves

cnbc.com:

Global stock markets diverged on Tuesday after a worldwide sell-off in the previous session, as analysts assessed the longevity of the bear market and risk of recession.

U.S. stock futures bounced in early premarket trade on Tuesday after the S&P 500 slid back into bear market territory the day before. 

Investors are awaiting a landmark monetary policy announcement from the Federal Reserve on Wednesday, with bets on a 75 basis point interest rate hike rising in light of a shock 8.6% annual inflation print for May.

The prospect that the Fed and other central banks will be forced to hike interest rates more aggressively in order to rein in inflation — at a time when growth is slowing across most major economies — has reignited fears of a global recession.

Guy Stear, head of EM and credit research at Societe Generale, told CNBC on Tuesday that while a recession was looking more likely, there were two prongs to consider.

«One is the pure economic outlook, and secondly the profit outlook. I would actually be more worried about profits than I would about economic growth itself,» Stear said. 

He said that the more-than 25-year trend of profit rising as a percentage of GDP was «more or less finished,» given the ongoing themes of deglobalization, higher energy and input costs, and higher wages.

«So I think that no matter what happens in terms of the economic outlook – and yes, the likelihood of an economic recession is mounting – the likelihood of a profit recession is mounting a lot faster.»

As well as the Fed, the Bank of England, Bank of Japan and Swiss National Bank are all set to announce monetary policy decisions this week. Each is facing its own set of economic challenges, along with the global problems of soaring food and