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A Mild Recession is ‘Already Priced in’ – JPMorgan

2022.07.25 20:58

A Mild Recession is 'Already Priced in' - JPMorgan
A Mild Recession is ‘Already Priced in’ – JPMorgan

By Sam Boughedda

A JPMorgan analyst said in a note Monday that a mild recession is already priced in, and “peak Fed pricing is behind us.”

The analyst, speaking on the firm’s current market view, explained that the growth-policy tradeoff is likely to improve as we move into the second half of the year and could open the doors to a more balanced Fed.

“The turn in interest rates and inflation forwards tactically favors the growth style over value, and should be a clear support for overall market levels. While a strong dollar historically weighed on LatAm stocks, this time the negative response could be milder given better external positions and low net debt/Ebitda levels,” stated the analyst.

JPMorgan remains tactically neutral duration, favoring flatteners in the medium term, while they remain Underweight Italy due to a lack of clarity on conditions for TPI activation.

“EU vs US HG spreads are the widest in 10+ years with good fundamental reasons, but we note opportunities in EUR securities of US issuers, which have widened in sympathy with their EUR peers. Despite positive news from the restart of Nord Stream 1, we would sell into strength in European credit and stay UW the Euro given ongoing energy risks. The global commodity inventory crunch accelerated with tradeable stocks critically low, particularly ex-China. A stronger inverse relationship with the dollar recently suggests further downside risk for gold,” he added.

The analyst concluded that while recession odds are increasing, “a mild recession appears already priced in based on the YTD underperformance of Cyclical vs. Defensive equity sectors, the depth of negative earnings revisions that already matches past recession moves, and the shift in rates markets to price in an earlier and lower Fed Funds peak.”

“With the peak in Fed pricing likely behind us, the worst for risk markets and market volatility should also be behind us,” concluded the analyst.

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