Corners of the stock market are pricing in a “Trump recession” and investors should get ready for a bounce, according to JPMorgan Chase & Co. strategist Marko Kolanovic.
Concern President Donald Trump’s trade war against China will sink the economy have chased investors out of economically sensitive stocks and into defensive shares, Kolanovic said. With the rotation widening valuation spreads too far, value and high-beta stocks could stage a rally of as much as 20 per cent in the short term should an agreement be reached, he added.
“The US economy is facing a quite unique situation in which one individual can disrupt global trade and investment plans of US corporations, tax consumers on a broad range of imports,” Kolanovic wrote in a note. “Given all of this – why are we not bearish on equities and the economy? Because this situation can also be undone on short notice and many market segments already price in worst-case outcomes.”
While some investors have turned cautious on equities since Trump last month escalated the trade spat, Kolanovic reiterated his view that the president is under pressure to strike a deal with China to boost his odds of getting re-elected. Should he, the broad market could post “a quick” rally of 5 per cent.