Recession angst is roiling Wall Street as investors worry President Trump's trade war will be a hit to growth, but that's not why markets keep plunging. In JPMorgan's view, there's an under-the-radar reason the market is struggling.

The bank said in a note this week that a corner of the hedge fund sector might be to blame for the recent weakness, rather than investors repricing the risk of a recession in 2025. What's more, analysts added that the weekslong sell-off may be waning.

"The recent US equity market correction appears to be more driven by equity quant fund position adjustments and less driven by fundamental or discretionary managers reassessing US recession risks," according to a team of strategists led by Nikolaos Panigirtzoglou.

"In our mind the most likely culprits are equity hedge funds and in particular two categories: Equity Quant hedge funds and Equity TMT Sector hedge funds."

The note follows weeks of seismic moves in equity markets, with major indexes now hovering in correction territory . The benchmark S&P 500 is down 9.7% from its late February high.

Blame has chiefly fallen on deteriorating macroeconomic conditions as weakening data points and trade war threats have sent volatility soaring.

JPMorgan also spotted this trend, noting that recession implications were creeping up across asset classes. But while equity and rate markets indicated recession odds as high as 50%, credit markets are pricing in remarkably lower chances.

"This divergence has been a phenomenon for most of the previous two years with multiple occasions when rate markets or equity markets priced in a high probability of US recession, while credit markets were much less concerned. At the end it was credit markets that were proven right as no recession took place," the bank said.

Instead, provisional data implied that the two types of hedge funds were reducing positions. Meanwhile, retail investors have continued to buy the dip, with only one day of outflows from US ETFs has been seen since the stock market's peak on February 19.

"If US equity ETFs continue to see mostly inflows as they have thus far, there is a good chance that most of the current US equity market correction is behind us," Panigirtzoglou wrote.

The bank's prediction is still being tested. New tariff threats from President Donald Trump weighed on the market for the third day this week. As of 1:04 p.m. ET on Thursday, the S&P and Nasdaq Composite were 1.10% and 1.68% respectively.

Still, others also suggest that recession fears might be overblown. Wells Fargo's head of equity strategy said the risk as a long-shot, telling CNBC that tariff noise likely won't be an issue in a year.

Earlier this week, Morgan Stanley pointed out that the stock correction might stall around the 5,500 level for the S&P 500, less than 0.5% from where the index was trading Thursday afternoon.

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