Market patterns suggest soft landing and a low chance of a Trump win: JPMorgan

Investing.com -- In a note Friday, JPMorgan analysts highlighted recent market trends that point toward a "soft landing" scenario for the U.S. economy, alongside a low likelihood of a Trump victory in the upcoming presidential election.

In their Flows & Liquidity note, the bank said August witnessed the largest equity fund outflow since 2022, driven by a "downshifting of the retail impulse into equities."

While short-term relief is expected from rebalancing flows, the outlook for equities beyond the quarter-end remains uncertain, according to JPMorgan.

"The past months' market patterns have been more consistent with soft landing and low chance of a Trump win," the bank stated, contrasting current trends with those seen in prior Fed rate cut cycles that led to recessions.

A "disinversion of the 2s/10s curve," which often signals an approaching recession, was also highlighted but is expected to materialize months before any downturn occurs.

On the political front, JPMorgan analyzed the potential market implications of various election outcomes.

"A Harris win without a Democratic Congress would entail more limited policy changes and have little implications for markets," the bank explained.

In contrast, JPMorgan believes a Trump win paired with a Republican Congress could lead to significant shifts in fiscal, tariff, and immigration policies, potentially driving inflation risks higher.

The analysts drew parallels between current market movements and those preceding the 2016 election, where a Trump victory surprised markets. However, they believe current trajectory suggests a different outcome.

"The market patterns so far have been overall more consistent with anticipating a Fed rate cut cycle with no recession," JPMorgan stated, further reinforcing the expectation of a soft landing.

Overall, JPMorgan feels the market seems to be pricing in minimal risk of a Trump win and is anticipating steady economic conditions through the next phase of monetary policy changes.

Source: Investing.com