Recession Risk Still Near 30%: Why Market Resilience May Be the Last Thing You Want to Chase

Recession risk still matters even as equities hold up

This is the dangerous kind of rally: real, but narrow. Global equities are acting tough while the macro backdrop still carries a 35% probability of a U.S. and global recession. That does not make the rally imaginary. Record corporate earnings and repeated shock absorptions have helped stocks stay resilient. The catch is that resilience is not the same thing as safety.

The bull case rests on earnings, while inflation still complicates policy

Bulls have real support. After a strong first quarter, analysts are looking for 20%-plus second-quarter year-over-year growth in S&P 500 earnings. Bears, meanwhile, are focused on what the rally may be masking. Inflation will stay above 2%, and elsewhere observers are already warning that inflation is now spreading through the economy. That matters because sticky inflation can delay the relief investors have been waiting for.

J.P. Morgan expects most DM central banks to either stay on hold or conclude their easing cycle in the first half of the year, which is another way of saying policy support may be less generous than markets would like.

Why the resilience trade has worked - and why it is getting crowded

This is not a delusional rally. It is being pulled higher by real fundamentals, which is why the trade has worked so well - and why it can get crowded quickly.

Earnings breadth and macro support are still doing the work

The first engine is earnings. Wall Street still expects 20%-plus second-quarter year-over-year growth in S&P 500 profits, and the breadth is healthier than recent leadership concentration might suggest: all but one sector are expected to report positive Q2 earnings. That lowers the odds that one or two mega-cap names have to defend the index on their own.

The second engine is macro support. U.S. growth is still expected to rebound to 2.2% in 2026, helped by fiscal and monetary easing, while AI investment and the diminishing impact of tariffs will support stronger productivity and economic expansion. Add strong household, corporate, and bank balance sheets to that mix, and you get an economy that can absorb shocks better than recession-phobic positioning implies.

Low fear changes what the market needs next

That matters more than it looks. A few months ago, investors were underwriting panic. Now, U.S. recession risk in April: below 1%. That does not mean the economy is bulletproof. It means positioning has swung hard toward a clean soft-landing story.

When everyone already owns the same resilience narrative, the market stops rewarding "things are not in recession." It starts demanding proof that growth, earnings, and policy support will keep aligning. In other words, the hurdle rate goes up.

The pressure point is timing, not outright direction

The key question is no longer simply whether earnings are strong. It is whether productivity and growth can stay ahead of sticky inflation, which J.P. Morgan says will likely remain a prevailing theme. That is a timing problem, not yet a collapse story.

If productivity and growth hold up first, the rally can extend without forcing policy to reverse. If inflation stays firm first, central banks remain more constrained, valuation support narrows, and leadership gets even more selective. Resilience can still work, but only if the data keep landing in the right sequence.

What to watch over the next quarter

The clean bull path is straightforward: - late-August Q2 results still need to clear the 20%-plus second-quarter year-over-year growth bar - U.S. growth is expected to rebound to 2.2% in 2026, aided by fiscal and monetary easing - the market keeps benefiting from AI investment continuing to drive market dynamics and support growth

If that happens, equities can stay firm. But this is a "prove it" bull case, not a blind one.

The bear case is not "recession tomorrow." It is a slower disappointment cycle: - Q2 earnings fail to clear that 20%-plus growth hurdle - Inflation will stay above 2% - and most DM central banks are expected to either stay on hold or conclude their easing cycle in the first half of the year

That combination would put pressure on valuation support. Add in the risk of turmoil in US government bond markets, and equity strength can turn into a rerating trap quickly.

The practical takeaway: do not pay full price for resilience

The signal to watch is not whether the economy is perfectly fine. It is whether earnings, growth, and policy can keep working together well enough to justify current valuations. If they do, equities can keep winning. If they do not, the easy trade gets harder fast.