Financial markets are pointing to a growing risk of a recession due to tariff-related uncertainty and economic weakness, according to Bloomberg. Indeed, the market-implied probability of a recession has increased, with some models, like that of JPMorgan (JPM), suggesting that there is a 31% chance of a downturn. This is up from 17% at the end of November.
Furthermore, the tariffs imposed by President Trump on Canada, Mexico, and China are not helping things either, as they are impacting business and consumer confidence. As a result, economic sentiment is worsening, with Nikolaos Panigirtzoglou, a strategist at JPMorgan, noting that money managers and corporate executives are struggling to cope with the market’s volatility. In addition, economist Mohamed A. El-Erian now sees a 25-30% chance of a recession, which is up from 10% at the beginning of the year.
Despite these concerns, some analysts believe that it is too early to predict a recession. Although U.S. stocks have erased their gains for the year, there are still bright spots in the investment and consumption cycle. This includes an unemployment rate that is hovering around 4%, along with strong income metrics. However, economic growth drivers have become more concentrated, which could make the economy more vulnerable to shocks, according to Cayla Seder, a macro multi-asset strategist at State Street Global Markets.
Is SPY a Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust (SPY) based on 410 Buys, 89 Holds, and six Sells assigned in the past three months, as indicated by the graphic below. After a 16% rally in its share price over the past year, the average SPY price target of $699.73 per share implies 20.6% upside potential.
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