These are the 2 risks to the stock market right now: Read By Investing.com

As the U.S. stock market navigates the second half of 2024, Citi analysts have identified two risks that could affect stock performance: growing recession risk and the Federal Reserve’s evolving monetary policy.

First, the threat of a recession has increased as labor markets show signs of weakening.

According to Citi, “Recession risk has increased as labor markets show some fraying at the edges,” which could disrupt the growth narrative that has underpinned the market’s performance so far.

“This poses some risk to the established 2H earnings,” the bank said.

They note that the attrition points to potential cracks in the broader economic landscape, raising concerns that the expected earnings pick-up in the second half of the year may not materialize as hoped.

Second, while potential Federal Reserve interest rate cuts could provide some relief, they also introduce uncertainty.

Citi notes that expectations for a more aggressive Fed response have risen, with the possibility of 125 basis points of cuts expected by the end of 2024.

However, analysts warn that this could be a double-edged sword. On the one hand, lower rates could boost sectors such as Consumer Discretionary, Financials and Real Estate. On the other hand, the market’s reliance on these anticipated cuts underscores the fragility of the current economic environment.

“Index-wide growth remains reliant on the Tech megacap cohort, amid subtle signs of a gradual slowdown elsewhere,” Citi says.

“The balancing act for investors as we go forward is the risk of progressive macroeconomic weakening in fundamentals, but offset by a potentially more accommodative Fed,” the bank adds. “Citi Economists continue to project a 2H24 recession, with 125bp of Fed tapering this year starting in September”.