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'Risky asset prices are too cheap' if recession avoided, JPMorgan says

·2 min read

With increasing speculation about the prospects for a recession in late 2022 or 2023, economists at J.P. Morgan aren't seeing it materialize.

"If there is no recession — which is our view — then risky asset prices are too cheap," a JPMorgan team led by strategist Marko Kolanovic wrote in a note to clients. "For instance, small cap stocks in the U.S. currently trade near the lowest valuations ever. Many equity market segments are down 60-80%. Positioning and sentiment of investors is at multi-decade lows."

Stocks, particularly tech stocks, are facing one the the worst first halves of the year in history amid elevated inflation, the Federal Reserve raising interest rates to tamp down that inflation, and resulting worries of a recession as the U.S. economy slows down. Bitcoin, a highly speculative asset, is down nearly 60% so far this year.

Some strategist think that stocks could fall further if there is indeed a recession in the next year or two.

"3,200 on the S&P is very attainable," Matt Maley, equity strategist at Miller Tabak, told Yahoo Finance Live (video above). "The thing is, people keep saying that the recession is getting priced into the stock market. I think it’s just barely beginning to be priced in."

The JPMorgan team added that while "the probability of recession has increased meaningfully, we do not see it as a base case over the next 12 months. In fact, ... we see inflation declining from a 9.4% annualized rate in the first half to 4.2% in the second half, which would allow central banks to pivot and avoid producing an economic downturn."

View of Nasdaq screen at Times Square on March 10, 2021. (Photo by John Smith/VIEWpress)
View of Nasdaq screen at Times Square on March 10, 2021. (Photo by John Smith/VIEWpress)

JPMorgan stressed that it's not that everything is rosy — just that it may not be as bad as people think.

"So it is not that we think that the world and economies are in great shape," the analysts noted, "but just that an average investor expects an economic disaster, and if that does not materialize, risky asset classes could recover most of their losses from the first half."

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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