JPMorgan Chase, the largest bank in the United States, says the country’s chance for a recession within the next two years stands at 60 percent, and rises to 80 percent within the next three years.
According to JPMorgan’s model, the chance for a recession in the next year stands at just 28 percent, but rises to 60 percent by 2020.
The bank’s model includes indicators that range from consumer and business sentiment to male labor participation, wage growth, and durables and structures as a share of gross domestic product.
However, a JPMorgan strategist recently said investors should remain bullish in the current climate because there is still plenty of money to be made, even though the market has been volatile.
“We still recommend investors to be overall overweight equities vs bonds. The current selloff in bonds is helping this trade cushioning the decline in equities,” said Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase & Co.’s London office.
Panigirtzoglou said investors should hedge positions by rotating out of corporate bonds and slide into government debt before the recession hits, noting emerging risks such as political unrest in Italy and ongoing trade disputes.
The ongoing trade dispute with China looms large as the Trump administration recently levied 10 percent tariffs on an additional $200 billion in Chinese imports. The tariffs then rise to 25 percent as of Jan. 1 if a new deal isn’t reached.
“With a hefty arsenal of hedges against the above risks, we are comfortable retaining a still large equity vs. bond overweight of 16% in our model portfolio, hoping that the third quarter outperformance in equities vs. bonds will continue into fourth quarter by encouraging both retail and institutional investors to resume or increase their equity buying,” said Panigirtzoglou in the report.
Editor’s note: What are your thoughts on when the next recession will hit? Do you think it will be sooner than later, or is the economy too strong for a recession in the near future? Let us know your thoughts in the comments below.