Anxiety about potential recession isn’t showing up in other part’s of the market which gives JPMorgan Chase & Co. strategist Marko Kolanovic confidence in his pro-risk stance.
According to JPMorgan, US and European stock markets are pricing in a 70% chance that the economy will slide into recession in the near-term. 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.
“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.
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.
