As the markets launch into 2023 with an upward moment, Wall Street firm JPMorgan has released a bullish outlook for the year, concluding that a soft landing could be the most likely outcome.[0] This is a stark improvement from October 2022, when the firm said a recession was almost a done deal.
JPMorgan’s trading model shows that seven of nine asset classes ranging from high-grade bonds to European stocks now show less than a 50% chance of a recession.[1] This marks a significant improvement from October when a contraction was effectively seen as a done deal across markets.
According to the firm’s strategists, the positive developments that helped create a narrative that the worse is behind us and a recession “somehow magically” happened last year include China’s reopening from Covid-19 lockdowns, a weaker dollar, and moderating inflation.
However, global money managers are far from bullish on the economic trajectory, with the S&P 500 still assigning a 73% probability that a recession will ensue.[2] Last year, the rate was as high as 98%, but this has declined. This is in line with the increased betting on a gentle landing that triggered an upsurge in the beginning of the new year.[3]
The likelihood of a recession is over 50% for base metals, aside from the S&P 500.[4] JPMorgan strategist Nikolaos Panigirtzoglou said that “most asset classes have been steadily pricing out recession risks helped by China reopening, the collapse of gas prices in Europe and larger than expected inflation downshifting in the US.”[3]
However, his colleague Marko Kolanovic said investors are underpricing the potential pressure on stocks stemming from the growth slowdown in the months ahead.[3] He warned that bears can find fresh ammo in weaker factory output and retail sales as well as a bond rally, while Federal Reserve officials warned rates would remain in restrictive territory.[3]
Wharton’s Jeremy Siegel believes there is a chance to avoid a recession if inflation remains low.[2] In the meantime, JPMorgan urges investors to watch out for a potential fading of the current equity market rally as the first quarter progresses.
0. “JPMorgan Strategists Now See Lower Odds Of Recession, But Economists Disagree” Benzinga, 22 Jan. 2023, https://www.benzinga.com/top-stories/23/01/30515389/jpmorgan-strategists-now-see-lower-odds-of-recession-but-economists-disagree
1. “JP Morgan: Seven of nine asset classes now show less than 50% chance of US recession – Bloomberg” FXStreet, 23 Jan. 2023, https://www.fxstreet.com/news/jp-morgan-seven-of-nine-asset-classes-now-show-less-than-50-chance-of-us-recession-bloomberg-202301230124
2. “JPMorgan Strategists Now See Lower Odds Of Recession, But Economists Disagree By Benzinga” Investing.com UK, 22 Jan. 2023, https://uk.investing.com/news/stock-market-news/jpmorgan-strategists-now-see-lower-odds-of-recession-but-economists-disagree-2888994
3. “Recession Odds Falling Sharply Across Markets: JPMorgan” ThinkAdvisor, 23 Jan. 2023, https://www.thinkadvisor.com/2023/01/23/recession-odds-falling-sharply-across-markets-jpmorgan/
4. “JP Morgan sees a lower chance of a US recession” ForexLive, 23 Jan. 2023, https://www.forexlive.com/news/jp-morgan-sees-a-lower-chance-of-a-us-recession-20230123