Investors should buy more government bonds to prepare for the likelihood of a recession later this year, says JPMorgan’s chief equity strategist. Investors are increasingly abandoning defensive positions as more market participants expect a soft landing scenario for the economy. This comes on the heels of a strong start to the year, with the Nasdaq Composite rising more than 30%, posting its best first half since 1983. But JPMorgan’s Marko Kolanovic said investors are wrong and continues to view a year-end recession as your base case perspective. He recommended switching to more government bonds to prepare for the risk ahead. “This benign and accommodating price of recession risk, coupled with increasing signs that a credit cycle is emerging, has us turning more negative on corporate bonds and more positive on government bonds,” Kolanovic wrote to clients on Monday. . “Therefore, we cut our credit allocation by shifting two percentage points from corporate bonds to government bonds in our model portfolio,” Kolanovic wrote. In addition, the strategist is encouraging investors to stay defensive in their portfolios, saying he has an overweight allocation to cash and an underweight allocation to stocks in his model portfolio. “In our view, the risk-reward ratio remains low in stocks given the slowdown in the economy with a recession likely to start in 4Q23/1Q24, softening consumer trends (expected excess Covid savings dry up in October, and restarting student loan payments becomes $10Bn of headwind per month), increased investor positioning and significant stock rerating so far this year,” Kolanovic wrote.
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