With July's non-farm payrolls data coming in well below expectations, Wall Street's focus has shifted from interest rate cuts to whether or not the U.S. economy will fall into recession. Nonetheless, some analysts still believe that there appears to be an overreaction in the market despite the increased risk of recession.

Apollo Global Management chief economist Torsten Sløk said in a media interview that the market's expectations for interest rate cuts were too aggressive.

After the release of the nonfarm payrolls report, expectations for four interest rate cuts within this year have risen sharply, and some analysts have even suggested that the Federal Reserve urgently cut interest rates before its September meeting. However, Sløk believes that investors should be skeptical of market pricing, given the market's dramatic volatility of the Fed's interest rate decisions.

Sløk also pointed out that the data show that consumers are still spending, including air travel, dining out and hotel stays, indicating that there is no sign of a reduction in consumer spending at this time. Overall, there is not enough evidence to suggest that the economy has entered a recession or is heading into one, Sløk said.

The most notable aspect of the July nonfarm payrolls report was the rise in the unemployment rate, which reached 4.3 percent, triggering the Sam's Rule, a well-known recession indicator. The report also showed that the number of new jobs created in July hit its second-lowest record since 2020.

According to Brett Ryan, senior U.S. economist at Deutsche Bank, the lack of further deterioration in layoffs despite poor hiring in the labor market suggests that the economy may not be falling into a recession. Ryan noted that the rise in the unemployment rate is largely due to an increase in the labor supply - either first-time entrants to the labor market or returning to work - rather than an increase in layoffs.

Initial jobless claims for the week of July 27 hit a nearly one-year high, but Ryan noted that the four-week average of initial jobless claims is actually declining if you exclude Texas (due to Hurricane Beryl, which triggered flooding and worker job losses).

Bank of America economist Michael Gapen takes a similar view. He wrote in a recent client report that the case for a massive emergency rate cut without massive layoffs is not as strong as the market expects, and that the labor market may be stronger than the market believes.

Goldman Sachs CEO David Solomon previously said that the U.S. stock market adjustment is healthy, the U.S. economy does not have the risk of recession, and expects the Federal Reserve will not be emergency rate cuts. Solomon predicted that the Federal Reserve will cut interest rates one or two times in the fall. He also said that market volatility will continue for some time as the market readjusts to new economic data and revises expectations for Fed policy.

In addition, some strategists see the sharp correction in the U.S. stock market as an opportunity to buy on the downside. The BlackRock Investment Institute, led by Jean Boivin, believes risk assets are expected to recover as recession fears ease and arbitrage trading stabilizes quickly. They see buying opportunities arising from AI-driven selling. The team says market fears of a recession have been exaggerated.

Chief Global Strategist Seema Shah echoed the same sentiment, noting in a media interview that Tuesday's market rally showed that economic concerns may not be as serious as expected. Shah added that the key to the current market situation for investors is whether the macro environment has changed radically. In her view, the current situation remains largely unchanged.