- Although GDP fell for a second straight quarter, it’s unclear if the US will fall into a recession.
- David Kelly, the chief global strategist at JPMorgan Asset Management, shared his investing outlook.
- Here are four stock market sectors to target, in Kelly’s view — and two to avoid.
It’s difficult to tell if the US is currently in a recession, is about to enter one, or will avoid one entirely, according to David Kelly, the chief global strategist at JPMorgan Asset Management.
A flurry of seemingly contradictory economic indicators means that bulls and bears can each make compelling cases for whether the 13.5% stock market rally in the past month and a half is justified or destined to unravel, the 32-year market veteran told Insider in a recent interview.
The bear case: GDP is weak, earnings have peaked, and a policy error is likely
While Kelly noted that the US isn’t officially in a recession until a committee of economists says so, he said that’s a technicality that shouldn’t be of much comfort to investors.
Several key barometers of economic health have deteriorated quickly in the past month or so, Kelly said, including industrial production, real personal income, and inflation-adjusted sales data for retailers and wholesalers. The rolloff of fiscal stimulus, a softening real estate market, weaker consumer confidence, and a stronger dollar have also been headwinds.
“It’s not overwhelming, but the odds favor a recession,” Kelly told Insider. “I mean, the only straws we’re clinging onto here is job growth.”
But even the silver lining of employment isn’t reason enough to rest easy, in Kelly’s view. While a 3.6% unemployment rate is historically low, the strategy chief warned that job growth “could easily turn negative in the next two months.”
“The reason employment is strong — or employment growth is strong — is not because the economy is strong,” Kelly said. “It’s because we had a lagged, huge pent-up demand for labor after the pandemic, which saw both increased consumer demand but also very weak supply with a lot of baby boomers retiring and much less immigration.”
Kelly added: “Until you get the job openings and the number of unemployed people back into alignment, you’re probably going to see positive job growth. It doesn’t say the economy is strong — it’s just an echo of past strength.”
Earnings are another vital indicator that Kelly believes is weakening, even as corporate reports continue to beat estimates on the top and bottom lines. It’s becoming harder and harder for firms to keep growing their revenue and earnings, Kelly said.
“We’re still in positive surprise territory, but this is …….