Stocks are trying to cancel the recession. Wall Street isn't so sure.

The stock market has proven resilient in the face of bank failures, macro uncertainty, and ultra-high interest rates so far in 2023. The S&P 500 (^GSPC), Dow Jones Industrial Average (^DJI), and Nasdaq Composite (^IXIC) are all in positive territory since the start of the year.

That follows a rough end to 2022, when the Dow, S&P 500, and tech-heavy Nasdaq plunged 9%, 19.4% and 33%, respectively, marking the worst annual performance for stocks since 2008.

But investors may want to hold off on the enthusiasm. The recent crisis surrounding regional banks, as well as new economic data, has prompted fresh worries of a recession ahead from some on Wall Street. That could be a buzzkill for stocks.

"The Fed indicated no intention to cut interest rates this year, yet risk assets are exhibiting an unprecedented rally, with European stocks trading near all-time highs and U.S. stocks recovering recent losses," JPMorgan analyst Marko Kolanovic wrote in a note to clients earlier this week.

"We expect a reversal in risk sentiment and the market retesting last year’s low over the coming months," the analyst said, predicting the stock market is operating in a "calm before the storm" period.

'Market's odds of a recession have increased'

JPMorgan Chase (JPM) CEO Jamie Dimon said in his annual letter to shareholders on Tuesday "the current crisis is not yet over," referencing the stunning collapse of Silicon Valley Bank, which sent shockwaves throughout the entire financial system.

"There will be repercussions from it for years to come," Dimon warned, although he said this isn't a repeat of the 2008 financial crisis, when mortgages held by global financial institutions went bad. "This current banking crisis involves far fewer financial players and fewer issues that need to be resolved."

Still, the executive cautioned recent bank failures "have significantly changed the market’s expectations" as "the market's odds of a recession have increased."

Dimon's comments come as Minneapolis Fed President Neel Kashkari echoed similar sentiments on CBS' "Face The Nation" last weekend, saying recent banking stresses "definitely brings us closer right now" to a recession.

"What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. And then that credit crunch, just as you said, would then slow down the economy," he said, noting it's too soon to tell what impact the crisis could have on future interest rates decisions or the broader economy.

Manufacturing data released Monday by the Institute for Supply Management added to concerns.

The ISM's latest manufacturing Purchasing Managers Index, or PMI, registered a reading of 46.3, the lowest since May 2020. More troubling, as Yahoo Finance's Myles Udland pointed out, was that Monday's report marked the first time since 2009 that all 10 sub-indexes of the report signaled contraction, meaning all indexes registered readings below 50.

"We are moving ever closer to a recession," Sam Stovall, chief investment strategist at CFRA Research, told Yahoo Finance Live on Monday. He cited corporate earnings, which were down about 4% in the fourth quarter of 2022 and are expected to have dipped 6.5% in the first quarter of 2023.

Previously, some analysts had sounded the recession alarm for later in the year. Andrew Patterson, senior economist at Vanguard, said his base case "is still one of recession" during an interview with Yahoo Finance Live in February, explaining: "We had believed it was likely to occur in the second half of 2023."

Although it's difficult to predict how deep the recession could be, "any recession is going to be painful," he said. "So it's something that investors should be prepared for."

Seema Shah, chief global strategist at Principal Asset Management, agreed on that timeline, telling Yahoo Finance Live in early March: "There will be pockets which will not suffer as much, but from the aggregate side, we do think that recession is, unfortunately, going to hit the U.S. economy late in 2023."

Alexandra is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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