According to JPMorgan’s CIO Bob Michele, the current economic market is reminiscent of 2008’s Global Financial Crisis. Michele, the chief investment officer for JPMorgan’s asset management department, said the present market state bears similarities to the “awful lot of that March-to-June period in 2008.”
Similar to the market’s status in 2008, the investors worried about the stability of US banks. In both scenarios, JPMorgan calmed unsettled investors by acquiring a competitor, Bear Stearns, on the verge of instability. Similarly, in May 2023, JPMorgan took over the troubled regional bank, First Republic.
Michele said, “The markets viewed it as there was a crisis, there was a policy response, and the crisis is solved.” He added, “Then you had a steady three-month rally in equity markets.”
After nearly 15 years of low-interest rates and cheap money around the world alarming investors and market analysts, renowned Wall Street executes have expressed concerns regarding the economy for over a year. According to them, reversing the Federal Reserve’s bond-buying programs and overseas strife has resulted in a dangerous economic combination.
However, despite the concerns, the US economy has shown stability and resilience, with May payroll numbers surpassing estimated figures and rising stocks causing market analysts and executives to predict the beginning of a new bull market. Michele said the vague period following the Fed’s decision to increase rates is not a recession. Instead, “it looks like a soft landing” because the economy is still growing.
Michele added that the chances of the economy leaning towards recession by the end of 2023 are high, and the current market condition ending without a downturn would be miraculous. While the recession could experience delay, it is inevitable, especially considering the after-effects of Covid stimulus funds. “I’m highly confident that we’re going to be in recession a year from now,” he said.
However, Michele’s comparison of the current market to the 2008 financial crisis received counterarguments. Blackrock bond chief Rick Rieder claims the present economy is doing much better than predicted and could avoid a recession. Another economist, Jan Hatzius of Goldman Sachs, estimated the chances of a recession by 2023 to be only 25%. Even market analysts who believe a downturn is on its way believe its severity will not match the 2008 scale.
Michele presented his argument by pointing out that the Fed’s movies since March 2022 are some of the most aggravated rates in four decades. This pattern coincides with the central bank’s decision to maintain market liquidity through quantitative tightening. The Feds allowed the bonds to mature without reinvesting the proceeds, hoping to reduce the monthly balance sheet by $95 billion.
Bob Michele also noted that regional banks, commercial real estate, and junk-rated corporate borrowers would experience the hardest hit if the economy tips toward a recession. According to him, regional banks are already under pressure since the investment losses are tied to higher interest rates and depend on government initiatives to meet deposit outflows.
