PUBLISHED MON, MAR 28 20221:06 PM EDTUPDATED 4 HOURS AGO
Crystal Mercedes | CNBC
JPMorgan chief global markets strategist Marko Kolanovic said Monday that a recession is not likely to occur in the short term, despite warning signals from the bond market.
The 5-year Treasury yield on Monday briefly rose above that of the longer-dated 30-year U.S. government bond for the first time since 2006 — just a couple of years before the Financial Crisis.
The inversion comes as some investors fear the Federal Reserve’s moves to tamp down inflation through rate hikes and monetary policy tightening could lead to a recession. The war in Ukraine has also added to worries of slowing economic growth.
Concerns about a recession pushed the S&P 500 lower by 0.2% to start the week. The Dow Jones Industrial Average also fell more than 180 points, or 0.5%.
But while “Fed rhetoric and yield curve” are “becoming concerning,” Kolanovic said “a near-term recession is unlikely.
“While the rates curve was one of the best leading recession indicators historically, recessions usually don’t start before inversion and the market typically peaks only a year afterwards,” the widely followed strategist said in a note.
Kolanovic added that not all parts of the yield curve are moving toward signs of recession. For example, the 10-year and 3-month spread has been steepening, Kolanovic pointed out.
“The start of hikes is typically accompanied by some market volatility, but this initial weakness ultimately gets absorbed, and the market moves higher. We still believe that recession should not be seen as a base case, even in Europe,” Kolanovic said.