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Are Recession Fears Overblown?

Granted, investors have more to fear than fear itself. But based on the disconnect between market performance and recent economic data, fears of another recession look to be overblown, says Jeffrey Kleintop, chief market strategist at LPL Financial.

One survey of economists puts the odds of recession at 25 percent. The debt and equity markets appear even more unnerved by the possibility of a double dip. Yet the latest data don't jibe with such high levels of anxiety, Kleintop says in his latest note to clients.

"Rather than an economic recession, we seem to be experiencing a confidence recession," Kleintop says. "Though risk of a recession has risen, we place the odds substantially lower than what the markets are placing on such an event, which seems to be well over 50 percent given stock market valuations and bond yields at recession levels."

Markets are reeling even as hard economic data remain reasonably solid, the strategist says, including shipping traffic, business lending, mortgage applications, industrial production, retail sales, initial jobless claims and corporate earnings. The reality reflected in the figures just ain't all that bad.

Especially interesting, Kleintop notes, is that the latest reading of leading economic indicators posted a solid and better-than-expected 0.5 percent gain, "marking the third straight month of re-acceleration in the year-over-year growth of the [index]."

Yes, the Philadelphia Fed manufacturing survey was a disaster, but that's actually a sentiment index (or more of a mood ring) than a hard piece of economic evidence, Kleintop says. (Much the same can be said for readings on consumer confidence.)

Either way, your portfolio will likely be better off if you remain stoic in the face of fear.

"History shows that it does not take much for the market to turn from agonizing over a wall of worry to climbing it," says Kleintop. "Importantly, the risks do not need to be resolved; merely confidence returns that the risks will be overcome."

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