By clicking "Sign Up", you accept our Terms of Service and Privacy Policy. You can opt-out at any time. Record-high S&P 500 year-end targets and soft-landing calls for 2024 suggest Wall Street is optimistic for what's to come. But market veterans caution the bear case is still alive. There's a chance the full effects Federal Reserve's restrictive policy haven't fully materialized yet, and experts say there are still plenty of hazards that could arise even as the central bank starts to think about cutting rates. Stubborn inflation, rising US debt, and a fatigued US consumer, among other factors, could tip the economy into a recession -- and hurt the stock market along the way. The latest inflation data, for starters, showed consumer prices unexpectedly moved higher in December to 3.4% year-over-year, above the prior month's 3.1%. That's muddled the outlook for Fed policy and tempered expectations for rate cuts as soon as March. "What's most important is that it's now very clear that a recession is not needed to bring inflation down to 2%, so any recession that occurs would be a mistake committed by the Fed," Morningstar chief economist Preston Caldwell told Business Insider. "And it would be a mistake that would be corrected quickly by rapid and deep rate cuts," he added. Should lagged rate-hiking effects indeed catch up to the economy, hiring would slow down, unemployment would rise, and consumption would ultimately decline, according to Allianz's senior investment strategist, Charlie Ripley. "The feedback loop to equity markets would be a decline in profit margins and lead to a decline in broad equity indices," Ripley told Business Insider. "In order for this to happen, we would have to see unemployment rise well above 4% and somewhere close to the 5% level." Historical data suggests stock market returns are mixed during a downturn. Of the 31 recessions that have struck the US since the Civil War, equities saw positive returns in about half of those instances. It's also worth noting that stock market returns have been highly concentrated in the Magnificent Seven mega-cap stocks in the last year, and a significant dip in those names could result in a strong move down for the broader market. Americans have effectively blown through all their savings from the pandemic, and a spending slowdown may already be underway. Credit card delinquencies are surging, people are saving less, and consumer confidence is tepid. Even retail hiring took a dip during the holidays, which suggests businesses are also turning cautious. "While the economy seems strong based on backward-looking data, it's quite fragile if the consumer pulls back," said Sal Naro, the chief investment officer of Coherence Credit Strategies. "That pullback would result in businesses reducing capital expenditures and employee headcount to limit profit margin deterioration, further exacerbating consumer spending weakness and creating a vicious downwards cycle." But it isn't just households. The government is racking up a historic pile of debt, too. Eric Diton, president and managing director at The Wealth Alliance -- who does hold an upbeat outlook for the year -- pointed to Fitch's recent downgrade of US debt as it crossed the $34 trillion mark. While the country has run a massive deficit during a stretch of economic growth, doing so during a contraction could bring trouble. "At some point, it is entirely possible that buyers of US government debt will demand higher rates to take the risk of financing a country with no concrete plan to reduce its debt," Diton told Business Insider. "Higher long-term rates slow the economy and can ultimately cause a recession as borrowers across the board pay more." JPMorgan cautioned that the US debt situation is like a "boiling frog" situation, and that by the time anything is done about it, it could be too late to avoid the worst of the damage. Overseas conflicts and geopolitical turmoil also loom large. Russia and Ukraine are still at war, as are Israel and Hamas, and attacks in the Red Sea have disrupted global supply chains and shipping. Tensions are running high in Asia, too, with China's sights set on Taiwan and tensions flaring with the US. "A military move by China would cause a US response and that could be World War III," Diton said. "Financing a war would stress an already over-levered US balance sheet, reducing government spending domestically and leading to a possible recession." The Red Sea disruptions also threaten to reignite global inflation this year, experts say. The waters around the Suez Canal are among the most important routes in the world for international trade, and disruptions to energy flows in particular could open up a new chapter in the inflation saga.