Skip to main content
logo
  • Funds

    Fund Listing

    • Fund Explorer
    • Fund Distribution
    • Fund Documents

    Capabilities

    • Equities
    • Fixed Income
    • Multi-asset

    Featured Funds

    • Income Solutions
    • Sustainable Infrastructure Fund
    • Future Transition Multi-Asset Fund
    • Provident Fund
  • Insights

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Weekly Market Recap
    • On the Minds of Investors
    • Guide to China
    • Multimedia

    Retirement Insights

    • Retirement Insights Overview
    • Principles for a Successful Retirement
    • Building Better Retirement Portfolios
    • Are you letting volatility derail your retirement plan?
  • Investment Ideas
    • What's new
    • Managing Volatility
    • Retirement and long-term investing
    • Sustainable Investing
  • Personal Investing

    Knowing the Basics

    • Mutual Funds 101
    • Taking the First Step in Investing
    • Ways to Diversify Your Portfolio
    • Investing for Your Children’s Future
    • Retirement Planning

    Getting Started

    • Start Investing
    • Investment Ideas
    • Invest regularly: Monthly Fund Investment
    • eTrading Privileges
    • Open an Account Online with Ease
  • Retirement Services
    • ORSO Services
    • MPF Services
    • Retirement Fund Centre
  • Resources
    • About Us
    • Awards
    • Contact Us
    • Announcements
    • Forms & Literature
    • Investment Return Calculator
    • Insights App
    • JPM Bot
    • FAQ
  • Library
  • Language
    • English
    • 中文/ Chinese
  • Role
  • Country
  • eTrading Login
    Open an Account
    Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. Are we in or headed towards a recession?

    • LinkedIn Twitter Facebook Line

    Are we in or headed towards a recession?

    20/05/2022

    Jordan Jackson

    The signal is clear: the economy is still firing on all cylinders and we are not in a recession.

    Jordan Jackson

    Global Market Strategist

    Listen to On the Minds of Investors

    20/05/2022

    Show Transcript Hide Transcript

    Jordan Jackson:                 

    Hi, my name is Jordan Jackson, Global Market Strategist at JP Morgan Asset Management, and welcome to On the Minds of Investors. Today's post asked the question, "Are bonds attractive?" The spike in yields to the first five months of this year has led to some very ugly returns in fixed income. The Bloomberg US Aggregate Bond Index is down 9.5% year to date.

    You'd have to go back to 1980 when the Federal Reserve lifted rates from 14% to 19% for a drawdown of this magnitude. Generally, these painful periods in bond markets have historically been in years when the Federal Reserve is or communicating it will tighten policy. 1980, 1994, 1999, 2013, and 2018 are all years that Central Bank was raising rates, with the outlier being the 2013 temper tantrum.

    The silver lining? Bad years tend to be followed by really good years in bonds, as the Fed eases up and rate volatility comes down. For bond investors, the move higher in treasury rates and the widening in credit spreads has led to some of the most attractive yield levels in recent history. As shown, current yields across a host of different fixed income sectors are at the highest level relative to recent history.

    And given the very tight relationship between current yield and subsequent performance, bond investors can expect decent returns from the income coupon these assets will generate over the next few years. Moreover, the move in yields now suggests bonds can provide a buffer in a market correction or an economic downturn. Consider this: The current yield on the nominal US 10-year treasury yield is around 2.8% while the pandemic low was 0.5% on March 9th, 2020. If the yield were to drop back to 0.5%, the US 10-year would post a price and total return of roughly 22% and 25% respectively.

    To be clear, we are not calling for a recession. However, as recession risks remain elevated amidst an uncertain outlook, stepping back into bonds as a portfolio hedge against an economic downturn seems appropriate.

    The US economy is showing signs that the post pandemic surge is beginning to moderate, but we do not think a recession is imminent. Nonetheless, stocks are near correction territory, consumer sentiment has soured to levels last seen in 2011, geopolitical tensions are elevated, and prices are higher everywhere; all of which challenge this view. To address this, investors should first understand what constitutes a recession and, importantly, how current conditions and trends shape the investment outlook.

    One common definition of a recession is two consecutive quarters of negative GDP growth, however, the National Bureau of Economic Research (NBER)—the official scorekeepers for recessions and expansions— define a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months…these include real personal income less transfers, nonfarm payroll employment, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, employment as measured by the household survey, and industrial production”.

    Utilizing this more expansive definition, incoming data shows:

    • Monthly nonfarm payroll growth has averaged over 550K in the past 6 months, signaling very strong demand for labor and a robust job market
    • Real personal income excluding transfers fell 0.3% m/m in in March but is 1.9% higher relative to a year ago and 1.2% higher relative to the pre-pandemic peak
    • Real consumer spending expanded 0.2% m/m in March as consumers continue to shift from buying goods to paying for services
    •  Industrial production rose 1.1% in April, aided by a 0.8% increase in manufacturing output

    Given this, the signal is clear: the economy is still firing on all cylinders and we are not in a recession. Moreover, looking at an even broader heatmap of economic variables (red = contracting, yellow = neutral, green = improving) across corporate profits, labor and activity, the evidence suggests the economy continues to expand healthily, albeit at a slower pace after roaring out of the pandemic. While the Federal Reserve is keen on bringing down inflation, a more cautious approach could allow for a soft-landing next year, suggesting risk assets may be oversold at this stage.

    That said, recession risks are rising as we look ahead to 2023: inflation could remain stubbornly high, pushing the Federal Reserve to overtighten policy; the fiscal drag this year is likely to slow economic momentum, and a lack of labor supply will likely weigh on growth. For those investors who may be less confident in the Fed’s ability, bond yields have shot higher this year creating a decent portfolio buffer in the event of market and economic downturn.

    U.S. economic heatmap

    U.S. econmic heatmap from 2020 to 2022.

    Source: BEA, BLS, Department of Labor, Census Bureau, Standard & Poor’s, Institute for Supply Management, FactSet, J.P. Morgan Asset Management. S&P 500 EPS (earnings per share) and SPS (sales per share) are expected earnings and sales per share growth over the next 12 months.

    Guide to the Markets – U.S. Data are as of May 17, 2022.

    09pf221602182411       

    FEATURED FUNDS

    Asian Total Return Bond Fund

    Read more
    • Volatility
    • Inflation
    J.P. Morgan Asset Management

    • Terms of Use
    • Privacy Statement
    • Cookies Policy
    • Investment Stewardship
    • Fund Notes
    • Offering Document(s)
    • Forms & Literature
    • Complaint Resolution
    • Guide to Using This Website
    • Sitemap
    • Download Insights App

    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    The information contained herein is intended only for use by Hong Kong residents. By using this information, you are representing and warranting that you are either residing in Hong Kong or the applicable laws and regulations of your jurisdiction allow you to access the information, and you confirm that you accept the Terms of Use as set out in https://am.jpmorgan.com/hk/. Investment involves risk. Past performance is not indicative of future performance. In particular, funds which are invested in emerging markets and smaller companies may involve a higher degree of risk and are usually more sensitive to price movements. Investors should carefully read and consider the fund offering document(s), which contain details on investment objectives, risk factors, charges and expenses of the fund, before making any investment decisions. Investors should read carefully the fund notes before making any investment decisions. Information in this website does not constitute investment advice, or an offer to sell, or a solicitation of an offer to buy any security, investment product or service, nor a distribution of information for any such purpose. Opinions and statements of financial market trends set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. Investors should conduct their own verification. The views and strategies described may not be suitable for all investors. This website and the advertisements contained herein are issued by JPMorgan Funds (Asia) Limited. This website has not been reviewed by the Securities and Futures Commission of Hong Kong ("SFC"), with the exception of material relating to the JPMorgan Provident Plan that the SFC has pre-approved (however such pre-approval does not imply official recommendation by the SFC).

    Apple, the Apple logo, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc.

    Copyright 2023 JPMorgan Funds (Asia) Limited. All rights reserved.