Fear of a U.S. recession in the capital market is now rising to nearly 80%, according to JPMorgan’s model. This is due to concerns over tariff policies that the U.S. President Donald Trump imposed on its trading partners.
According to JPMorgan’s dashboard of market-based recession indicators, the U.S. small-cap index Russell 2000 now pricing in a 79% chance of an economic downturn.
JPMorgan strategist, Nikolaos Panigirtzoglou, stated that due to the nature of the Russell 2000 being a cyclical index, it should be a good indicator to represent the U.S. economic cycle. He added that the small cap has priced in almost 100% for a mild recession.
Money managers and corporate executives are facing volatility created by the trade war that Trump escalated. The rally in the U.S. market on April 8 almost surpassed the rise in 2022 until Trump confirmed that the White House will move forward with the imposition of 104% tariff on China, leading to heavy drops in Wall Street.
Several asset classes also display a similar indication, such as the S&P 500, base metals, and five-year Treasuries, are pricing in 62%, 68%, and 54%, respectively for recession. However, investment-grade credit markets only priced in 25% chance for recession.
Meanwhile, the indicators for corporate bond markets have not shown that they have not priced in the possibility for recession. Panigirtzoglou stated that if the corporation remains strong, investors will believe there will not be an issue. Its drawdown, however, could send a ripple effect to the financial system, leading to a tightening of liquidity and threatening bankruptcies of U.S. corporations.
