Inside Markets — Narrowed Downside Tail Risk

The recent de-escalation in trade tensions has narrowed downside tail risk but won’t immediately change the probability of a recession, which seems to be around 50% for most economists.  US equity markets were underpricing recession risk at the start of the week and the three/four-day rally has the probability now at only ~30%.  The SPX has also moved into a strong technical resistance zone between 5396-5650.  More positive policy momentum and upside skew in the pain trade could push the SPX to the upper end of resistance, but we still expect it will hold, with the index backing up and bottoming out later this quarter.