A research firm has issued a warning about the market sell-off potentially becoming a "self-fulfilling prophecy."

• A recession could result from sustained market declines following the global sell-off, according to Morningstar DBRS analysts.
• Despite being one of the most heavily impacted stock sectors, the analysts predict that the market volatility's effect on banks will be limited.
• At the conclusion of last week, global markets plummeted, and on Monday, concerns about a U.S. recession intensified. However, on Tuesday, stocks appeared poised to recover some of their losses.

A recession could result from sustained market declines following the global sell-off, according to Morningstar DBRS analysts.

They stated in a Monday note that in their opinion, the direct impact of these significant market drops is minimal.

Analysts warned that if the market sell-off continues, it could lead to a self-fulfilling prophecy, where CEOs cut back on investments and consumers pull back on spending, resulting in further cuts and a recession.

Last week, global markets experienced a decline, with Japan's Nikkei 225 losing more than 12% on Monday and the S&P 500 in the US posting its worst day in nearly two years. The hardest-hit sectors were technology and banking.

Markets were recouping some of Monday's losses on Tuesday.

The global decline became steeper after the U.S. released a weaker-than-expected jobs report on Friday. Nonfarm payrolls were only 114,000 in July, which was far below the projected 185,000 and significantly lower than the previous month's figure. As a result, the unemployment rate rose to 4.3%.

The concerns about the world's largest economy and the possibility of a recession were sparked by the data, leading to questions about the Federal Reserve's decision not to cut interest rates during its meeting last week.

On Monday, Morningstar analysts stated that the economic data indicated a "slowing, yet still expanding" U.S. economy and pointed out that the unemployment rate remains below the anticipated 4.4% natural level as per the Congressional Budget Office.

The second quarter saw a 2.8% increase in U.S. gross domestic product, as indicated by recently released data.

Recent earnings releases and guidance from U.S. banks suggest that they are not overly concerned about a soft landing being threatened, according to Morningstar.

Even if the market declines further or the U.S. enters a recession, the impact on banks is likely to be limited, according to analysts.

Although global stock markets have experienced significant drops, banks in the U.S. and major markets remain resilient, with sufficient capital and liquidity buffers, even if the stock market continues to decline or the U.S. enters a recession, according to a Morningstar note.

The analysts stated that most U.S. banks have minimal exposure to equities in their portfolios and balance sheets, and the impact on wealth and asset management fees paid to banks would be negligible since they were previously boosted by higher market valuations.

Volatility in capital markets can benefit players, but rapid changes in valuations can result in higher losses if not properly hedged.

Capital management by banks in Japan, which experienced steep declines, was not expected to have any significant impact on the material level.