J.P. Morgan's Chief Strategist, David Kelly, addresses the liklihood of a recession in the current, emotionally charged market enviroment. Read the full transcript of his commentary below.
"Hello. This is David Kelly. I’m Chief Strategist here at J.P. Morgan Funds.
In finance, almost as much as in politics, the most passionate and least reflective voices receive the most attention. A slump in Chinese stocks and the Chinese currency at the start of the year triggered a global stock market selloff. This, together with lower oil prices and some pretty weak numbers on global manufacturing, prompted many loud voices to say that the U.S. is either already in recession or is falling into one with near certainty. These dire predictions, in turn, have frightened many investors who remember the pain of seeing the stock market fall in half in the last two recessions.
However, in this emotionally charged atmosphere, there are four key aspects of the current economic and financial environment that investors need to appreciate:
- First, there is simply no evidence that the U.S. economy is in recession and little evidence that it is going to enter one over the next few quarters.
- Second, the real risk of recession is cumulative; while the danger of recession in the next few quarters is low, the risk of recession over the next few years is high.
- Third, the last two recessions were extraordinary from a stock market perspective as, in each case, the stock market saw the worst bear market since the depression. There is no reason to believe that the next recession would have an equally dramatic stock market impact.
- Fourth, even if the risk of an imminent recession was very high, relative valuations of stocks and bonds are completely different from their normal pre-recession configuration, making it very difficult to argue for an underweight to traditional risk assets today." Download below to read full transcript.
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