With much of the world experiencing slower economic growth and global financial markets tumbling, the odds of a recession happening in the U.S. have been starting to increase.
A recent survey of economists by The Wall Street Journal found that the likelihood of a recession in the next 12 months had increased to 21%, double the level of a year ago. Despite the rising concern, Federal Reserve Chair Janet Yellen says a U.S. recession is still unlikely, as do many executives and analysts.
While economists at New York investment bank Morgan Stanley are still predicting growth this year -- albeit only slight -- the bank's models indicate the risk of a recession is rising. Morgan Stanley surveyed its U.S. analysts to pick the 18 worst stocks to own if the U.S. economy does enter another slowdown (yesterday we published a list of their best stocks to own if the U.S. falls into recession).
Here's what they think:
Analyst Rajeev Lalwani believes American's AAL below average margins and limited profit sharing "defines the fixed-cost skewed structure," which he feels is less desirable in a downturn.
"Despite a growing focus on maximizing revenues of late, we believe: 1) Elevated leverage through 2016 may magnify weak trends; 2) The large aircraft order book driving $5-6B in annual capex hinders cash flow generation; and 3) Exposure to premium traffic means pricing will take an outsized hit relative to the group overall," he writes.