JPMorgan's Bob Michele Issues Dire Warning On Rally Of Risk Assets, Says Recession Is Inevitable

Bob Michele, the chief investment officer of JPMorgan Asset Management, has warned of an economic downturn, saying that markets are headed for a rally before an inevitable slowdown. 

In an interview with Bloomberg on Friday, Michele says risk assets will rise in the next quarter as they did during the Great Recession. 

"In the next quarter, we could see risk assets rally. You could have a feel-good period, and then the reality catches up," Michele said. "If we've been taught anything this month, you may see it coming, and you may not. You don't know exactly where it's going to hit. But once it hits, whatever you own, you own."

During the interview, Michele anticipates that the central bank may cut starting in September. He said many investors, including himself, are now sanitizing their portfolios so that they only have assets that can weather or thrive in an economic downturn.

Michele advised investors to avoid leaning into the rally as gains will be fleeting, adding that the U.S. will enter a recession by year-end.

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"We think the recession is inevitable by the end of the year," he said.

"Having been an investor through the financial crisis and looking at that seminal moment when Bear Stearns and JPMorgan JPM  combined, the next quarter was great for markets. Equities went up 15% to 20%," Michele said. "High-yield credit spreads retraced a quarter, and the bottom fell out."

"When the pain hits, when we get into a recession, we're expecting high-yield credit spreads to go to a minimum of 800 (basis points) over" comparable U.S. Treasuries, he said during the interview. "Defaults can get up to around 6%."

"I did five client calls yesterday, and all of them were about: What do we own in our portfolios?" Michele said. "I want to use the next quarter to comb through our portfolios and ensure we have the best-quality borrowers."

Last month, Michele was quoted saying that a recession is likely and that the best investment strategy is to stick to high-quality bonds. He predicted that the whole Treasury yield curve would come down to as low as 3% by August.

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