A soft landing is becoming a more likely outcome for the global economy than a recession, according to strategists at JPMorgan Chase. The avoidance of a global recession, along with moderating inflation and wage pressures among other factors, should continue to provide tailwinds for risky assets, they added in a note. Within equities, the firm favors cyclical stocks, which it said should benefit from the gradual easing of inflation. They also like small-cap stocks and remain bullish on China and emerging-market stocks.
“We maintain that inflation will resolve on its own as distortions fade and that the Fed has over-reacted with 75bps hike. We will likely see a Fed pivot, which is positive for cyclical assets,” they said. The bank’s strategists said economic data and investor positioning were more important factors for the performance of risk assets than hawkish central bank rhetoric. “The data appear to be increasingly supportive of a soft landing (rather than global recession), given moderating inflation and wage pressures, rebounding growth indicators, and stabilizing consumer confidence,” said the bank’s global markets strategy team.
The U.S. consumer-price index is due to be released later Tuesday and economists expect it to show that annual inflation cooled to 8% in August, from 8.5% in July. That would be the second consecutive month of decelerating price growth, and the lowest rate since February. “Our expectation that the global economy will stay out of recession, increasing fiscal stimulus (e.g. China and energy support in Europe), and still very low investor positioning and sentiment should thus continue to provide tailwinds for risky assets, despite the more hawkish central bank rhetoric recently,” they added.
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