Mainstream Analysts Warn: Use Stock Rally To Sell, Recession Odds Now 33%

A new report by J.P. Morgan analyst Jan Loeys suggests that traders should be selling stocks following the recent market rally. According to the report, J.P. Morgan now sees a 33% chance of a U.S. recession sometime in the next year.

“The eventual recession should bring US stocks down some 30%, creating a strong downward risk skew to returns over the next few years,” Loeys explains.

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She notes that even if the U.S. avoids a recession, the firm projects only low single-digit earnings growth and nothing to suggest multiple expansion will be happening anytime soon. That means that J.P. Morgan sees risk skewed to the downside when it comes to stocks.

The firm is currently 5.0 percent Underweight on stocks, but remains Overweight on credit and cash. It’s now Neutral on bonds and remains 1.0 percent Underweight on commodities.

Although J.P. Morgan is underweight stocks and commodities overall, Loeys says the firm is still overweight on defensive sectors, emerging market equities and gold.

Investors looking to trade J.P. Morgan’s outlook might consider selling the SPDR S&P 500 ETF Trust SPY and buying the iShares MSCI Emerging Markets Indx (ETF) EEM and the SPDR Gold Trust (ETF) GLD.

Disclosure: the author holds no position in the stocks mentioned.