No need to worry about recession? Bank of America: It's time to increase holdings in US stocks!

With growing concerns about economic recession, investors may be wise to increase their holdings in stocks. Yes, you read that right.

Concerns about economic recession are largely priced into the market - unless there is a sudden shock to the economy - it makes sense for investors to reintroduce riskier assets into their portfolios.

Bullish on Risk Assets?

Bank of America Securities stock and quantitative strategist Savita Subramanian recommends that investors hold stocks rather than bonds, and hold cyclical stocks rather than defensive stocks.

Hedge funds and long funds are close to peak exposure in defensive industries such as healthcare, utilities, and basic consumer goods, which means that the risk-return of cyclical stocks may be better.

This return is even more apparent because the S&P 500 index, which is currently expected to have a P/E ratio of 20 times, seems expensive.

But DataTrek Research co-founder wrote that if earnings per share can remain stable at $50 for the next three quarters, the seemingly high P/E ratio may be seen as a "low point."

Colas wrote: "This time, rumors of an economic recession are everywhere, so asset prices have been affected to some extent."

"Even if an economic recession is imminent, the Federal Reserve has room to ease the impact after raising interest rates by 5%. The only 'break' so far after the fastest rising cycle in history," Subramanian wrote.

Optimism on Wall Street

Subramanian is not the only one who is optimistic.

Some on Wall Street are confident that there will be no economic recession, and the things that make economic recession look likely - inverted yield curves, inflation, and the recent banking crisis - actually guarantee that economic recession will not occur.

Anatole Kaletsky, chief economist at Gavekal Research, said that historically, the inverted yield curve, where long-term bond yields are lower than short-term bond yields, has been a predictor of economic recession, but it is no longer a good barometer.

As for the decline in inflation, Kaletsky believes that this is more evidence of supply chain improvement than evidence of a tightening monetary environment.

Kaletsky also refuted the view that the recent banking crisis is a sign of an impending recession, pointing out that this will force the Federal Reserve to stop "single-mindedly pursuing inflation targets" and ultimately suspend monetary tightening policies to avoid pushing the economy into recession.

All of this should be good news for investors who are nervous about investing in the stock market during difficult times.