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The equity market is too optimistic and we remain cautious on risk assets is what JPMorgan’s strategists told the clients.
They are “reluctant” to chase the ongoing rally in stocks with the S&P 500 rallying about 15% from its 2022 low set in October.
“We believe that the current market rally will start fading as we move through Q1,” the strategists said in a client note.
JPM’s equity strategists made a number of changes across the broker’s portfolio, including increasing Underweight in equities due to recent outperformance. JPMorgan is still bullish on commodities and on emerging markets/China equities.
“We believe that a lot of good news is already in the price in terms of inflation moderation or the potential for a soft landing. While signs of declining inflation pressures are in principle positive, ongoing tightness in labor markets is likely to put pressure on margins, and may cause central banks to tighten further than markets expect,” the strategists added.
As far as sectors are concerned, the strategists are cautious on Cyclicals and Banks, while remaining bullish on Defensives. They also added that Growth stocks could outperform tactically as bond yields have likely peaked.
“We stay bullish on Commodity equities – Mining and Energy, driven by USD peaking, China reopening, low inventories and still cheap valuations, despite the good run,” the strategists concluded.
