After a bumpy start to the year, the risks facing global stocks are now priced in, according to JPMorgan Chase & Co.’s Mislav Matejka.
Neither the Federal Reserve nor the European Central Bank will move further into hawkish territory, “at least relative to what is priced in currently,” strategists led by Matejka wrote in a note on Monday. Meanwhile, headline inflation is peaking and earnings are likely to surprise positively. “We believe that equities still offer upside, and that the cycle is far from over,” they said.
US and European stocks started the year on the wrong foot amid fears that more aggressive monetary tightening to tame inflation will lead to a sharp slowdown in economic growth. While a solid earnings seasons is helping to alleviate some concerns over a less forgiving macroeconomic backdrop, equity markets have remained volatile, and strategists are divided about the outlook for the rest of the year.
“We think it is wrong to position for a recession, given still extremely favourable financing conditions,” very strong labour markets, strong corporate cash flows and the likely bottoming of economic growth in China, JPMorgan’s team wrote.
By contrast, Morgan Stanley’s chief US equity strategist Michael Wilson today reiterated that “winter is here,” for stocks.
“Earnings risk is increasing for a wider swath of the market than most investors expect as rising inventories meet waning demand,” strategists led by Wilson wrote in a note. They listed the earnings disappointments of pandemic market darlings including Netflix Inc., Paypal Holdings Inc. and Facebook owner Meta Platforms Inc. as examples of the “payback for last year’s over consumption.”
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While Wilson recommends investors position defensively for more downside, JPMorgan’s team says investors should follow the opposite strategy, with an underweight position on traditional defensive sectors such as real estate, consumer staples and health care stocks.
Photo: Bloomberg
