Investing like a recession is coming makes no sense, strategist warns

Time for a touch of optimism.

Recession concerns may be on the rise (see Google search trends below) thanks to soaring inflation, rising gas prices and an unpredictable conflict between Russia and Ukraine, but that doesn’t mean building out an all defensive stock portfolio is the correct move, warns veteran JPMorgan market strategist Mislav Matejka.

“We think it is wrong to position for a recession given still extremely favorable financing conditions, very strong labour markets, under-leveraged consumer, strong corporate cash flows and banks’ strong balance sheets. The sector leadership remains risk-on, and it is not consistent with a continued slowdown,” Matejka said in a new note to clients.

Matejka thinks investors should stay bullish on banks, mining, energy, insurance, autos, travel and telecom stocks.

“We believe one should look through the widespread ‘slowdown’ calls that are currently in vogue,” Matejka adds.

It’s those economic slowdown calls from Wall Street — in part also reflecting fears of faster-than-expected interest rate hikes — that has weighed heavily on stocks almost two months into 2022.

The Dow Jones Industrial Average (-6.2%), S&P 500 (-8.8%) and Nasdaq Composite (-13.4%) are all down for the year.

Slowdown worries have hammered the once hot FAANG (Facebook’s parent company Meta, Amazon, Apple, Netflix and Google) complex even more — the average stock in this cohort is down 19% year-to-date. Meta is the worst performer, down nearly 40%.

In turn, investors have rotated into perceived safe havens.

Gold prices have gained in 12 of the past 15 sessions as the yellow metal knocks on the door of $2,000 an ounce. Shares of dividend-paying, consistent growing soda giant Coca-Cola are trading at a record high.

“Upcoming recession scare best played via long bonds-short commodities,” said the latest Bank of America fund manager survey.

Other big names on the Street agree that recession fears are perhaps too elevated right now.

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Queens’ College, Cambridge University president and Allianz advisor Mohamed El-Erian said on Yahoo Finance Live a recession this year is unlikely despite inflationary pressures.

“I think for the United States, don’t under estimate the resilience of the U.S. economy. I think the biggest risk to the U.S. economy is a policy mistake [from the Federal Reserve]. That is the biggest risk,” El-Erian said.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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