Wall Street is at it again: pricing in a recession, but not everyone's on board. According to JPMorgan's Nikolaos Panigirtzoglou, U.S. markets are sending mixed signals about the economy's future.

While small-cap stocks, bond yields and base metals are flashing red, credit markets are staying cool, just as they did during the past two years' false alarms.

Who’s Crying Recession?

The Russell 2000 small-cap index tumbled 17% from its peak, implying a 52% probability of a U.S. recession based on historical drawdowns. The Russell 2000 index tracking iShares Russell 2000 ETF ( IWM ) is down 9.46% year-to-date and 11.47% over the past month alone.

The S&P 500-tracking SPDR S&P 500 ETF ( SPY ) is down 8.7% over the past month. The S&P 500 index signals a 33% chance, while base metals and 5-year Treasuries price in recession risks of 45% and 46%, respectively.

These numbers suggest the economy is teetering — but credit markets aren't buying it.

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Credit Markets: The Smart Money?

High-grade corporate bonds, as tracked by the iShares iBoxx $ Investment Grade Corporate Bond ETF , see just a 12% probability of recession, while high-yield credit, as tracked by the iShares Broad USD High Yield Corporate Bond ETF , pegs it at a mere 9%, per JPMorgan analysis.

That's a stark contrast to the 50% risk embedded in small caps and rate markets. If credit markets hold the crystal ball — as they did in 2022 and 2023 — this could be another false alarm.

So, Why Is The Nasdaq Down?

Panigirtzoglou notes recent equity losses have more to do with quant fund positioning than fundamental recession fears. At the same time, tariff uncertainty is creeping into investor sentiment, weighing on growth expectations. Nasdaq's decline, in particular, may reflect risk-off positioning rather than a direct bet on an economic downturn. The Nasdaq-100 tracking Invesco QQQ Trust is down 7.74% YTD.

If credit markets are right again, the recent correction could be just noise. If they're wrong?

The recession alarm bells coming from small caps and rate markets might be worth heeding.

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