Markets could see a rally before an inevitable downturn, said Bob Michele, the chief investment officer of JPMorgan Asset Management, adding that American investors are cleaning out their portfolios with assets that can withstand an economic recession.
“I actually think in the next quarter, we could see risk assets rally. Having been an investor through the financial crisis and looking at that seminal moment when Bear Stearns and JPMorgan combined … the next quarter was great for markets,” the veteran investor said in a Bloomberg interview Friday. “Equities went up 15 to 20 percent. High-yield credit spreads retraced a quarter, and then the bottom fell out.”
“You could have a feel-good period, and then the reality of the cumulative and lagged catch up, and slow the economy down.”
When the interviewer asked if investors could lean into a short-term risk rally, Michele said, “Absolutely not.”
“If we’ve been taught anything this past month, you may see it coming, you may not. You don’t know where exactly it’s going to hit, but once it hits, whatever you own, you own, and you have to hope that you own the stuff that recovers.”
“We think recession is inevitable by the end of the year.”
As to the nature of the recession, he replied: “It’s the central banks and the aggressive amount of tightening they’ve done, and it’s not just the rate hikes—it’s also quantitative tightening. There is a reverse multiplier for that, and that’s sucking credit out of the system.”
In another Bloomberg interview on March 15, Michele said, “There was tremendous liquidity sloshing around in the system, that’s being taken out. We always knew there would be a hard adjustment, but now it’s starting to get painful.”
Because there’s a lot more “consolidation” and “pain” yet to come, “you put your money into the highest quality assets you can find, whether it’s government bonds or high-quality corporates and securitized credit.”
