Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

US Recession Odds Are Falling Fast, JPMorgan Trading Model Shows

Economy Aug 04, 2022 18:08
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.
 
US500
+2.59%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
+3.09%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

(Bloomberg) -- Markets appear to have moved on from the furious debate on what is the right definition of a recession.

A US economic downturn looks increasingly less likely in the eyes of the stock market, according to a measure of recession probabilities created by JPMorgan Chase & Co. (NYSE:JPM) strategists. 

In fact, with the exception of base metals, pricing of major markets suggest even odds, or less, of one happening after the US economy shrank for a second straight quarter. Together equity, credit and rate markets have assigned a 40% probability to a US recession, down from 50% in June.

The apparent calm, especially in equities, jars with warnings from economists and an inverted US yield curve, often seen as a signal of an approaching recession. Forecasts among economists in the same period have jumped to a consensus of 40% from 30%.

As the S&P 500 clambers back from June lows toward the highest level in two months, the change in sentiment among stock investors might be a matter of “sell the rumor, buy the fact.”

“The equity market was well ahead of the curve in terms of pricing in recession risk in June and has now converged with other markets such as credit and rate markets,” said JPMorgan strategist Nikolaos Panigirtzoglou.

The S&P 500 implies a 51% probability of recession -- down from 91% two months ago. Similarly, pricing of US junk bonds now carries a recession probability of 24%, down from 33% in June. 

Only the Treasury and commodities markets are sounding higher odds of a recession. For five-year Treasuries the probability has climbed to 38% from 15%. Commodities are pricing in an 84% probability of a downturn, versus 65% in June.

The renewed optimism from markets belies consecutive quarterly slowdowns in US economic activity this year. Other key economic measures including consumer outlays and residential investment have also recently showed signs of cooling.

Junk bond markets are also signaling recession relief with their risk premiums standing at levels more usual for non-recessionary periods.

Read more: Junk Bond Market Is Signaling the US Will Avoid a Recession

With Federal Reserve officials resolute on taking aggressive action to douse generation-high inflation, even if it means derailing growth, strategists caution that markets are setting themselves up for big disappointment.

“I find it difficult to agree with a lower recession probability, but it is summer, event risk is low and carry is a desirable attribute,” said Peter Chatwell, head of global macro strategies trading at Mizuho International Plc. “I expect a different market psyche to materialize come September.”

©2022 Bloomberg L.P.

 

US Recession Odds Are Falling Fast, JPMorgan Trading Model Shows
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email