The stock market is poised for a strong second half of 2022 as the US economy avoids a recession and inflation gets cut in half, JPMorgan says
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The stock market is primed for strong returns in the second half of 2022, according to JPMorgan, as the US economy narrowly avoids a recession.
The bank expects the annualized inflation rate to halve in the coming months.
Falling inflation will "allow central banks to turn around and avoid an economic downturn," JPMorgan said.
Investors should brace for strong stock market returns in the second half of 2022 as the U.S. economy avoids a recession, JPMorgan said in a statement Thursday.
The bank's confidence comes from its view that the annualized inflation rate will be halved from 9.4% to 4.2% in the second half of the year, which "would allow central banks to turn around and avoid an economic downturn," it said JPMorgan's Marko Kolanovic said.
Such a sharp decline could only be spurred by some sort of ceasefire between Russia and Ukraine, which JPMorgan expects in the second half of the year when the economic costs of the war for many countries, including Russia, are fully realized.
Falling inflation would be a welcome sign for both investors and consumers after pent-up demand in a post-pandemic world and supply chain disruptions from Russia's war on Ukraine and China's COVID-19 lockdowns helped push inflation up pushing 40-year high.
Not only does JPMorgan not expect an economic recession anytime soon, but the bank also expects global economic growth to accelerate again, according to the release.
“Although the likelihood of a recession has increased significantly, we do not see it as a baseline scenario for the next 12 months. In fact, we are seeing global growth accelerate from 1.3% in the first half of this year to 3.1% in the second half. ' said JPMorgan.
Much of that growth will be driven by China, according to the Bank, whose economy could grow as much as 7.5% in the second half of the year unless COVID-19 lockdowns resume. That strong growth would trickle down to other emerging markets, the bank said.
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 putting the probability of a recession at around 50 for the past few weeks % figured.
The case for strong stock market returns for the rest of the year hinges on avoiding a recession and is bolstered by the fact that many asset classes are already trading between 60% and 80% below their highs, essentially a deep and prolonged According to the statement, the economy is pricing in a downturn. Additionally, investor sentiment and positioning are at multi-year lows.
“So we don't think the world and economies are in the best of shape, just that the average investor expects economic disaster and if that doesn't happen, risky asset classes could recoup most of their losses from the first half of the year .” Kolanovic concluded.
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