United States: There is a self-fulfilling equilibrium between growth and share prices

The return to full employment in the United States will lead to a growth slowdown; but will this be a slowdown or a recession? The only major financial imbalance in the United States is the high equity market valuation. Wealth effects linked to equities are significant in the United States. We can then see that there is a self-fulfilling equilibrium between growth and share prices in the United States: If there is a soft landing (a simple slowdown), the US equity market will remain attractive, and the fact that share prices remain high will prevent a recession, ensure the soft landing, and make it rational to continue to invest in US equities; If there is a recession, investors will sell US equities, share prices will drop, and this fall will trigger a recession that makes it rational to sell equities. In the United States we therefore have two equilibria: Soft landing and high share prices; Recession and falling share prices, both of which are rational . The equilibrium that will unfold depends on expectations: if investors believe in a soft landing, they will keep US equities and the high share prices will enable a soft landing; if investors expect a recession, they will sell US equities and the fall in share prices will trigger a recession .