- JP Morgan Chase stated that avoiding a recession is almost impossible after the banking crisis
- The Fed raised rates only 25 points and shifted their policy in response to the banks
- Leading investors advise moving into safe haven assets before a massive drop in the market
Recession Seems Inevitable
In the wake of the banking crisis, JP Morgan Chase issued a warning that we are “past the point of no return” to avoid a recession. The economy is facing a prolonged downturn for several reasons. Accessing money is harder, banks are feeling worried, and the stock market is heading for a meltdown.1
Despite the recent rescue of several U.S. banks, markets remain unsettled. Bank of America surveyed global fund managers. They said a “systemic credit event” is now seen as the biggest threat to markets.2
The Federal Reserve announced a rate hike of 25 points. They are conducting a delicate balancing act. They must contain inflation without causing further damage to the banks. The Fed made notable changes in their policy statement. They shifted away from “ongoing increases” to the policy rate to “some additional firming.” Fed officials tried to reassure investors that the “U.S. banking system is sound and resilient.”3
But JPMorgan strategists warn that it may be too little, too late. They said that the banking chaos will likely affect the decisions of the Federal Reserve for a long time. Even if central bankers contain contagion, the damage has been done. Pressure from both markets and regulators is going to tighten credit markets and drive stock prices down.
We could be facing a potential “Minsky moment.” That is the theory that extended bull markets result in major collapses. The US experienced an extended bull market from 2009 through 2020 that was revived in 2021. We seem overdue for a collapse.
Banking Crisis Speeds Economic Collapse
Jeremy Grantham is a renowned investor and co-founder of the investment firm GMO. He warned conditions are amplifying a bursting “everything bubble.” This will cause a recession and plunge the S&P 500 by up to 50%. The current bubble includes stocks, bonds, and real estate. These investments reached unsustainable highs during the pandemic.
Grantham predicts a bear market could persist until deep into next year. He notes that the dot-com crash only caused a mild recession. In this recession, the S&P 500 could slump by around 24% to roughly 3,000 points. But in a worst-case scenario, it could tumble below its pandemic low to around 2,000 points. Graham sees the economy tanking after May. Unemployment will rise, growth will slow, and corporate profits will fall.4
The warnings from JPMorgan Chase & Co. and Jeremy Grantham should not be taken lightly. They suggest that the global economy is teetering on the brink of disaster. A recession is imminent. Economic fundamentals can deteriorate for years before they finally bottom out. Investors need to be prepared for what could be a long and difficult period ahead.
JPMorgan analysts advise being cautious on risk assets. Investors should be defensive in portfolio allocation. They suggest that now is not the time to take chances. Geopolitics are still weighing heavily on securities. Instead, investors should pursue safe haven assets that can recession-proof their portfolios. Contact us today to learn how a Gold IRA can protect your wealth during this economic upheaval.
