JPMorgan Now Sees 60% Odds Of A Recession

It was just one month ago that JPM's quant Marko Kolanovic, who was especially bullish headed into the close of what proved to be the worst year for capital markets since the financial crisis, realized that his prediction would not pan out.  Kolanovic bizarrely blamed "fake media" and "specialized websites that mass produce a mix of real and fake news [and] often these outlets will present somewhat credible but distorted coverage of sell-side financial research, mixed with geopolitical news, while tolerating hate speech in their website commentary section" for somehow interfering with capital markets and preventing his optimistic view from being realized (one hopes the implication was not that said 'specialized websites' have more influence on markets than, say, JPMorgan).

Fast forward to today when something odd happened: none other than JPMorgan itself appears to be in the "fake news" business because the firm is now warning that - according to various markets - just two months after we reported that "JPMorgan Sees 60% Odds Of A Recession In 2 Years", the largest US bank now writes that "US equity, bond and commodity markets appear to be pricing in on average close to 60% chance of a US recession over the coming year."

And it's not just one but two reports, the first from JPM economist Jesse Edgerton who writes that even after Friday's solid payrolls data, "our model estimates of the risk of recession have risen sharply over the past three months. Our preferred model based on economic data now puts the probability of recession beginning within 12 months at 39%, and models that incorporate signals from financial markets are [around 70%].The bank then concedes that while it still thinks the most likely scenario involves continued moderate growth in 2019, i.e., the infamous "JPMorgan House View", it acknowledges that "risks of a downturn have increased."

A second, more nuanced, report comes overnight from JPM strategist Nikolaos Panigirtzoglou, who is JPM's bearish yang to Kolanovic's bullish ying, and who tries to calculate "how much of a recession" markets are currently pricing in, adding that "to answer this question we look at the historical behavior of different asset classes around past US recessions, and in particular at the move from the pre-recession peak to the trough during the recession. To keep things simple, we assume that, at market peaks, no chance of a recession is priced in and by the time we reach the market bottom the recession is fully priced."

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