Doomsday predictions for an economic slowdown that will drag down equity markets are fashionable, but wrong, according to JPMorgan Chase & Co strategist Mislav Matejka.
“We believe one should look through the widespread ‘slowdown’ calls that are currently in vogue, and stay bullish on banks, mining, energy, insurance, autos, travel and telecoms,” Matejka and his team wrote in a note on Monday. Over the past six months, and in direct contrast to bearish predictions, “the internals became more bullish again,” they said.
Matejka’s optimistic view was published on a volatile day for European stocks as investors weighed geopolitical developments in Ukraine, and comes after a bad start to the year for global equity markets amid rising inflation and signals of hawkish pivots by central banks. Europe’s benchmark Stoxx 600 index is down about 5.8% this year, while the S&P 500 has fallen about 8.8%.
The drawdown seen so far in 2022 appears to vindicate bears, such as Morgan Stanley’s Michael Wilson, who has been arguing for months that rising rates and a less forgiving macroeconomic backdrop will mark the end of equities’ ferocious rally. At the same time, Bank of America Corp. strategists led by Michael Hartnett reiterated on Friday that the rising “rates shock” will morph into “recession shock,” and advised a short position in equities.
But JPMorgan’s Matejka disagrees. “We think it is wrong to position for a recession given still extremely favourable financing conditions, very strong labour markets, underleveraged consumer, strong corporate cash flows and banks’ strong balance sheets,” he wrote.
Data released on Monday showed that both manufacturers and service providers in the euro-area saw output improve in February. Rising demand and a gradual easing of supply bottlenecks underpinned stronger orders and job growth, according to purchasing managers indexes compiled by IHS Markit.
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“Better relative growth expectations in turn support our view that Eurozone earnings growth will be higher” than U.S. growth this year, JPMorgan’s strategists said ahead of the data releases, reiterating their overweight position on Europe versus the U.S., and their preference for cheaper, so-called value shares, versus more expensive sectors.
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