Morgan Stanley: If the number of initial jobless claims in the United States continues to rise, concerns about economic recession may weigh on risk assets
The continuous increase in initial jobless claims in the United States may trigger concerns about economic recession, suppressing risk assets. Marko Kolanovic, Chief Market Strategist at Morgan Stanley, stated that the current prices of all risk assets reflect a "very small" expectation of an economic recession. While the valuation of small-cap stocks implies a "quite limited" possibility of an economic recession, the valuation of the S&P 500 index suggests a 0% possibility of an economic recession. If initial jobless claims continue to rise, concerns about economic recession may resurface
According to the Zhitong Finance and Economics APP, Marko Kolanovic, Chief Market Strategist at Morgan Stanley, stated on Monday that if initial jobless claims continue to rise, it may trigger concerns about an economic recession and weigh on risk assets.
Data released last week showed that the number of initial jobless claims in the United States rose to 242,000 people as of June 8, the highest level in nine months and the third consecutive week of increase. Marko Kolanovic said, "If initial jobless claims in the United States do not fall below the 230,000 mark but continue to rise, concerns about an economic recession in the United States may reappear, making risk assets uneasy."
Marko Kolanovic mentioned that the prices of all risk assets currently reflect a "very small" expectation of an economic recession. As of June 13, the Russell 2000 small-cap stock index implied a 31.4% chance of an economic recession. While the valuation of small-cap stocks implies a "quite limited" possibility of an economic recession, the valuation of the S&P 500 index suggests a 0% chance of an economic recession.
Marko Kolanovic stated that the mild inflation data released last week reinforced the prospect of an economic soft landing, but if the labor market softens significantly at the same time, this mix could trigger concerns about a recent economic recession.
Morgan Stanley measures recession risks by comparing the peak and trough of the current cycle with stock market declines during past economic recessions. Small-cap stocks in the United States are suitable for measuring cyclical risks, in part because they are sensitive to interest rates, with these companies relying more on floating rate bonds than other asset classes. Marko Kolanovic mentioned that in the previous 12 economic recessions, the average decline from peak to trough for small-cap stocks was about 33%, slightly higher than the 29% decline in the S&P 500 index