From Wall Street to the World Economic Forum (WEF) annual meeting in Davos, a resort town in eastern Switzerland, a recession.concernwas mentioned again last week, but according to JPMorgan Chase & Co., the odds of an economic downturn priced in by financial markets have actually plummeted from 2022 highs.
Seven out of nine asset classes, from high-quality bonds to European stocks, now have a recession probability below 50%, according to JPMorgan’s trading model. That’s a big change from last October, when the contraction was effectively seen as a fait accompli in various markets.
The S&P 500 continues to reflect a 73% chance of a recession coming, and global money managers are far from bullish on the economic trajectory. But the odds are down from last year’s peak of 98%, consistent with the growing investment betting on the soft-landing direction that sparked the New Year’s rally.
“Recession risk is steadily being priced out across most asset classes, thanks to the re-opening of the Chinese economy, plummeting natural gas prices in Europe and a faster-than-expected slowdown in U.S. inflation,” said JPMorgan strategist Nikolaos Panigiltsoglu. “The market sees a much lower chance of a recession than it did in October.”
Market-Implied Odds of Recession Tumble
JPMorgan
But economists were less optimistic, with the consensus forecast for a recession rising to 65% from 50% in October.
The US Treasury yield curve, which the bond market favors as a recession signal, continues to flash warning signs. Yields on three-month Treasury bills (TBs) are higher than those on 10-year Treasuries, suggesting investors are betting on a slower growth trajectory.
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