- According to JPMorgan, the stock market is poised for strong returns in the second half of 2022 as the US economy struggles to weather the recession.
- The bank expects the annual inflation rate to halve in the coming months.
- Falling inflation, JPMorgan said, would “allow central banks to turn around and avoid an economic downturn.”
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JP Morgan said in a note on Thursday that investors should be prepared for strong stock market returns in the second half of 2022 as the US economy navigates a recession.
The bank’s confidence rests on the notion that annual inflation will halve to 4.2% from 9.4% in the second half of the year, which “will allow central banks to turn around and avoid an economic downturn,” it said JPMorgan’s Marco Kolanovic.
Such a sharp drop could only be sparked by some sort of ceasefire between Russia and Ukraine, which JPMorgan expects to occur in the second half of the year as the economic costs of the war are fully felt by many countries, including Russia. She goes.
Falling inflation will be a welcome sign for both investors and consumers as slumps in demand in a post-pandemic world and supply chain disruptions from Russia’s war on Ukraine and China’s COVID-19 lockdown pushed inflation to a 40-year high have driven. helped drive it.
According to the note, not only does JPMorgan expect the economy to slow down soon, but the bank also expects global economic growth to pick up.
“Although the likelihood of a recession has increased significantly, we do not see this as a base case for the next 12 months. In fact, we see global growth going from 1.3% in the first half of this year to 3.1% in the second half. Done,” said JP Morgan.
According to the bank, much of this growth will be driven by China, which could grow its economy by up to 7.5% in the second half of the year unless COVID-19 lockdowns resume. The bank said this strong growth will spill over into other emerging markets.
JPMorgan’s view that there will be no recession is a far cry from what most Wall Street banks are saying, with Deutsche Bank, Citi, and Wells Fargo all expecting a nearly 50% recession in recent weeks.
The case for strong stock market returns for the remainder of the year hinges on weathering a recession and is bolstered by the fact that many asset classes are already trading between 60% and 80% from their highs, essentially a noisy price quote in the deep and long economic price bearish. Additionally, investor sentiment and positioning are at multi-decade lows.
“So it’s not that we think the world and economies are in great shape, it’s just that the average investor expects economic disaster, and if this riskier asset class recovers most of its losses from the first half of the year does not make up for. could,” concluded Kolanovic.