Stocks fall 20% if bonds have straight inflation in the JPMorgan model

The growing link between stocks and bonds suggests a 20% downside risk for stocks if bonds prove correct in pricing inflation volatility, according to modeling by JPMorgan Chase & Co. strategists.

“Bond markets are still pricing in a sustained period of heightened macroeconomic uncertainty, although there has been a modest slowdown over the past three months,” strategists including Nikolaos Panigirtzoglou and Mika Inkinen wrote in a note. “In contrast, equity markets see ‘priced for perfection’ with S&P now above a fair value estimate that sees through the increase in macroeconomic volatility since the pandemic.”