The U.S. is 'not a good place to hide' in a slowdown, JPMorgan says. The Fed is on the clock
Federal Reserve Chair Jerome Powell and other members of the U.S. central bank are meeting Tuesday and Wednesday, trying to chart a path where the U.S. can avoid both a recession and sticky inflation. There are signs that Wall Street may be a bit too confident that the Fed will hit the mark without hurting the economy. JPMorgan strategist Mislav Matejka said in a note to clients Tuesday that, after a period of high volatility followed by a long winning streak, the U.S. stock market is still trading at optimistic levels. "[The S & P 500] is still trading at 21x forward, on 10% EPS growth expectation for this year, and 14% for next. That is far from pricing in any meaningful recession fears," Matejka said. .SPX 3M mountain The S & P 500 is well off its lows from early April. If the U.S. does fall into a recession, global economic growth will take a hit too, and take a bite out of foreign stock markets as well. But relative to historical patterns, the U.S. "is not a good place to hide," Matejka said. "If markets relapse into weakness, the US has typically held up better than other regions during risk-off periods, but this time around Tech and USD might not be the 'safe' havens," the note said. Some areas of the economy — most importantly the labor market — appear to be holding firm, meaning that a recession for the U.S. is still not a guarantee. But there does seem to be a growing fear that U.S. officials are running out of time to avoid a serious slowdown. The latest CNBC Fed Survey shows expected odds of a recession have jumped to 53% from 22% in January. The same survey shows the majority of respondents expect the Fed to cut rates when growth falls, even if there is upward pressure on inflation. And there are plenty of data points to hang those worries on. Supply chain data shows a sharp decline in both imports and exports from U.S. ports. Last week the Conference Board's consumer expectations index fell to its lowest level since 2011 . To be sure, using the price-to-earnings ratio of the stock market is not a perfect science, and the uncertainty around earnings makes valuation analysis "tricky for the time being," said Kevin Gordon, senior investment strategist at Charles Schwab. Still, that same uncertainty around trade policy can lead to real economic pain. "I wouldn't say we're priced for a recession right now, but there is a risk that the longer these delays roll on, the higher the likelihood that this economic weakness takes on a life of its own and can't necessarily be saved by some huge tariff announcement or some huge trade deal," Gordon told CNBC.
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