J.P. Morgan JPM bullish on global stocks.
“We believe that equities still offer upside, and that the cycle is far from over,” the bank’s strategists, led by Mislav Matejka, wrote in a commentary.
“We look for more gains in earnings, bottoming out in China activity, after being cautious on the space last year and expect the Fed not to turn ever more hawkish ... Investor sentiment has become too negative of late.”
In addition, the CBOE Volatility Index (VIX), a measure of stock-market volatility, has flashed a strong buy signal, the strategists said.
That’s because it has surged by more than 50% of its one-month average. Going back to 1990, when that has occurred, stocks have gained 100% of the time over the next one-month and six-month periods, outside of recessions, the strategists said.
“We think it is wrong to position for a recession, given:
· Still extremely favorable financing conditions, with real rates at negative 70 basis points;
· Very strong labor markets;
· An unleveraged consumer;
· Strong corporate cash flows;
· Strong bank balance sheets; as well as
· The turn for the better in China’s policy outlook.”
The impact of Covid should continue to fade, the strategists said.
“This should help stabilize consumer confidence,” they write.
In addition, there are signals that supply-chain disruption has bottomed and that the surge in power prices is easing, they said.
“Geopolitics could heat up again in the second half of February, but we expect any military escalation [in the Ukraine] to be localized and short-lived, producing another buying opportunity.”
J.P. Morgan economists see strong economic growth, particularly in the eurozone, where they forecast GDP expansion of 4.6%, beating the U.S. for the first time in five years.
“We continue to see gains for earnings, and believe that consensus projections for 2022 will again prove too low,” the strategists said.
They are particularly bullish on emerging markets, as they see an easing of previous headwinds, such as regulatory uncertainty in China and Covid. The strategists also are overweight on the eurozone, citing vaccination rates, economic growth and policy support.
“The eurozone is delivering a strong earnings rebound [and] is trading cheap,” they said.
J.P. Morgan is neutral on the U.S., because price-earnings ratios are high, and the market “could stall versus other regions,” if the outperformance of technology stocks wanes.
The strategists are neutral on the tech sector.
“We continue to believe that tech fundamentals are supportive, through strong balance sheets, significant buybacks and structural tailwinds, making this a very different setup to 2001,” they said.
“But the relative outperformance was dramatic and the cyclical backdrop for tech is less positive, especially if real rates start rising.”
