The U.S. economy grew at an annualized rate of 1.3% in the first quarter, shrugging off prior fears of a recession. But according to JPMorgan Chase & Co., the “R word” may be inevitable.
That’s because of the U.S. Federal Reserve’s aggressive interest rate hikes to tame rampant inflation.
“While the economy’s recent resilience may delay the onset of a recession, we believe that most of the lagged effects of the past year’s monetary tightening have yet to be felt, and ultimately a recession will likely be necessary to return inflation to target,” JPMorgan strategists led by Marko Kolanovic wrote in a recent note to investors.
Although the stock market has made a strong comeback — the S&P 500 is up 15% in 2023 — Kolanovic’s team remains on the cautious side.
“We maintain a defensive asset allocation and believe the risk-reward for equities remains poor given the disconnect between equities and bonds, high likelihood of a recession over the coming quarters, high rates, tightening liquidity, rich valuations and the still-narrow market breadth,” they wrote.