Good Articles to Share
Stock markets are overpricing recession risk, JPMorgan strategist says
Equity investors’ anxiety about a potential recession isn’t showing up in other parts of the market, which is giving JPMorgan Chase & Co. strategist Marko Kolanovic confidence in his pro-risk stance.
US and European stock markets are pricing in a 70% chance that the economy will slide into recession in the near-term, according to estimates by JPMorgan’s top-ranked strategist. That compares with a 50% chance priced into the investment-grade debt market, 30% in high-yield debt and up to 20% in rate markets, Kolanovic wrote in a note to clients on Monday.
Should the recession fears fail to pan out, subdued equity positioning and downbeat sentiment will help the stock market to recover, Kolanovic wrote.
Recession warnings been bubbling for months this year amid the war in Ukraine, coronavirus lockdowns in China and a more hawkish Federal Reserve. Anxiety that policy makers’ efforts to tame inflation will send the economy into a recession has caused investors to yank almost $10 trillion off US equity markets this year.
“Either equity markets prove right and a recession takes place, inducing much bigger declines in bond yields, or rate markets prove right and a recession is avoided inducing a recovery in equity markets,” Kolanovic wrote. “Our view remains that the probability of a recession over the next 6-12 months is low and thus stay with a pro risk stance.”
Even as signs the economy is weakening are everywhere, sniffing out evidence an outright recession is on its way is still tough. Manufacturing and services activity is off its peaks but still in expansion. Consumers continue to spend, while employment and housing data doesn’t scream danger.
Kolanovic, voted the No. 1 equity-linked strategist in last year’s Institutional Investor survey, recommended using recent weakness in oil and energy names to add exposure. A steadfast bull on value stocks, he has repeatedly urged investors to buy the dip during the stock-market rout in 2022. But those calls haven’t worked out so far as the S&P 500 has lost 16% since its January peak.
JPMorgan’s concern that recession angst is overwhelming the stock market is echoed by UBS Group AG. The stock market is pricing in 40% chances of an economic contraction, according to the bank’s model.
Similarly elevated recession odds have historically pointed to further equity losses when a recession materializes, according to a study by the firm’s strategists led by Keith Parker. But stocks usually rally when the worst doesn’t pan out, with the S&P 500 jumping 12% over the ensuing 12 months, they found. By Parker’s estimate, the market will be priced for an economic and earnings recession if the S&P 500 falls below 3,800.
- Bloomberg
More articles on Good Articles to Share
Kremlin says any new 'colonial' U.S. aid to Ukraine won't change frontline situation
Created by Tan KW | Apr 18, 2024
Flooded UAE counts cost of epic rainstorm, Dubai airport still facing disruptions
Created by Tan KW | Apr 18, 2024
Russia may be ready to attack NATO in 5-8 years, German official says
Created by Tan KW | Apr 18, 2024
Wall St set for higher open as chip stocks bounce back after selloff
Created by Tan KW | Apr 18, 2024
China's central bank signals caution over credit boost as demand weakens
Created by Tan KW | Apr 18, 2024
Discussions
Be the first to like this. Showing 0 of 0 comments
Post a Comment
Featured Posts
Apps
Top Articles
1
Good Articles to Share
Slower US Fed pivot weakens rate-cut bets across emerging Asia
2
Good Articles to Share
Bank of America CEO talks earnings, consumer spending, and inflation
3
Good Articles to Share
4
6
7
Good Articles to Share
8
#
Stock
Score
Daily Stocks
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
MQ Trading Signals
Stock
Time
Signal
Duration
Stock
Time
Signal
Duration
Featured Advertisers / Partners
Ride The Bull Short The Bear
CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
