'Little' US recession risk is priced in equities and credit: JPMorgan

Investing.com -- According to JPMorgan analysts, despite rising concerns about a potential US recession, equity and credit markets are not reflecting the recession risk.

In a note to clients on Thursday, JPMorgan pointed out that while bond and commodity markets are pricing in more elevated recession risks, equities and credit markets appear relatively optimistic.

"Market pricing appears to suggest little US recession risk priced in equities and credit," the analysts noted, even as bond and commodity markets seem to indicate a higher level of caution. This divergence is said to be particularly evident in market positioning.

According to JPMorgan, global non-bank investors hold elevated positions in equities, showing confidence in the stock market’s resilience.

However, momentum-based investors are more cautious, with "modest longs in the US" and neutral positions in other regions.

They add that bond positioning tells a different story. The note highlights that "bond positioning does appear somewhat long overall," with institutional and non-bank investors leaning towards long-duration positions.

According to the investment bank, this suggests these investors are more concerned about recession risks, potentially anticipating that interest rates may decline further.

"Long duration positions from here arguably imply more elevated recession risks as rates would need to decline by more than forwards," JPMorgan explained.

The outlook on commodities also reflects higher recession risk, with "depressed commodity positioning" consistent with a more cautious economic view.

Ahead of the US labor market report, JPMorgan sees a clear contrast between the optimism in equity and credit markets and the more cautious stances in bond and commodity markets. They note that while equities suggest little recession risk, other areas of the market appear to be hedging for a more uncertain economic future.

Source: Investing.com