May as well stick with the winning jockey until he loses.

More than a month ago, Marko Kolanovic, a top-ranked global markets strategist at J.P. Morgan Chase, was advising investors to buy stocks amid the market downturn.

That, so far, has turned out to be good advice with the S&P 500 higher by nearly 10 per cent from its lows.

Now, Kolanovic says concerns about a recession are overdone.

Here are his three reasons why.


With excerpts from Bloomberg

There’s “too much negativity rather than too much complacency in markets.”

So says Marko Kolanovic and his team at J.P. Morgan Chase.

They cite three reasons for their optimistic outlook:

  • Both equity and credit markets have historically fared well at the start of monetary tightening cycles.
  • Even as nominal bond yields and rates rise, “the real policy rate (measured against inflation) is extremely negative and thus simulative” and it’s too early to take yield curve inversion inversion as a signal of recession risk.
  • Not all central banks are tightening, as the Bank of Japan and People’s Bank of China are moving in the opposite direction, and equities “look likely to see some support from fiscal stimulus” in those countries.

Stock markets on both sides of the Atlantic have quickly recovered from the selloff triggered by Russia’s invasion of Ukraine, paring this year’s losses.

Even as a spike in commodity prices and an inversion in parts of the U.S. treasury yield curve have raised concerns that an economic slowdown is imminent, the rout has mostly affected bond markets, with equities so far shrugging off recession risks.

In a recent post, we featured Morgan Stanley’s Michael Wilson, Chief U.S. Equity Strategist & Chief Investment Officer, who advised investors to “sell any rally”, as he believed stocks remained in the firm grasp of a bear market and that risks outweighed rewards.

JPMorgan’s team disagrees, saying that economic indicators are so far beating expectations and that it’s too early to position for a recession.

“These positive economic surprises are likely to translate into earnings surprises in the coming reporting season,” they said in their note.

In fact, with forecasts projecting a “large sequential decline in S&P 500 profits, the hurdle for the coming earnings reporting season, which kicks off in the U.S. in about two weeks, seems rather low.”


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