- The inventory market is primed for robust returns within the second half of 2022 because the US economic system narrowly avoids a recession, in line with JPMorgan.
- The financial institution expects the annualized inflation fee to get lower in half over the following few months.
- Falling inflation will “permit central banks to pivot and keep away from producing an financial downturn,” JPMorgan stated.
Buyers ought to brace for robust returns within the inventory market throughout the second half of 2022 because the US economic system avoids a
JPMorgan stated in a word on Thursday.,
The financial institution’s confidence stems from its view that the annualized inflation fee will get lower in half within the second half of the yr from 9.4% to 4.2%, which might “permit central banks to pivot and keep away from producing an financial downturn,” JPMorgan’s Marko Kolanovic stated.
Such a pointy decline might solely be pushed by some type of ceasefire between Russia and Ukraine, which JPMorgan expects to occur within the second half of the yr because the financial prices of the struggle turn into absolutely realized for a lot of international locations, together with Russia.
Falling inflation can be a welcome signal to each buyers and customers, after pent-up demand in a post-pandemic world and provide chain disruptions from Russia’s struggle in opposition to Ukraine and China’s COVID-19 lockdowns helped drive 40-year highs in inflation.
Not solely does JPMorgan not anticipate an financial recession to materialize anytime quickly, however the financial institution additionally expects a reacceleration in world financial development, in line with the word.
“Whereas the likelihood of recession elevated meaningfully, we don’t see it as a base case over the following 12 months. In truth, we see world development accelerating from 1.3% within the first half of this yr to three.1% within the second half,” JPMorgan stated.
A lot of that development might be pushed by China, in line with the financial institution, which might see its economic system develop by as a lot as 7.5% within the second half of the yr, so long as COVID-19 lockdowns do not resume once more. That robust development would trickle right down to different rising market economies, the financial institution stated.
JPMorgan’s view that no recession will materialize is a far cry from what most Wall Street banks are saying, with Deutsche Bank, Citi, and Wells Fargo all putting odds of a recession at about 50% in latest weeks.
The case for robust inventory market returns for the remainder of the yr hinges on avoiding a recession, and is compounded by the truth that many asset lessons are already buying and selling between 60% and 80% beneath their highs, primarily pricing in a deep and extended financial downturn, in line with the word. On prime of that, investor sentiment and positioning is at multi-decade lows.
“So it isn’t that we expect that the world and economies are in nice form, however simply that a mean investor expects an financial catastrophe, and if that doesn’t materialize dangerous asset lessons might get better most of their losses from the primary half,” Kolanovic concluded.