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Recession risk rising, low returns ahead: Street

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Quantitative models for forecasting recessions are sending warning signals, suggesting low returns for risky assets are ahead, JPMorgan told clients this week.

"Current levels of recession risk predict below-average returns on equities and widening corporate spreads," JPMorgan economist Jesse Edgerton wrote on Wednesday. "At face value, these forecasts would suggest that asset allocations should begin to shift away from equities."

Wall Street firms such as JPMorgan rely on quantitative models to assess the probability risk of economic events and determine asset locations.

At the current levels, the investment bank sets the probability of a recession at 40 percent within the next two years and over 50 percent within three years, Edgerton said.

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