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Marko Kolanovic, JPMorgan’s chief global markets strategist, reiterated his bullish view on U.S. equities as he believes inflation “will resolve on its own as distortions fade.”
Falling CPI numbers in the coming months are likely to drive a Fed pivot, which will be a major positive catalyst for stocks.
“Incoming CPI releases (e.g. recent declines in gasoline, airfares, used cars, etc.) continue to support our call for a large but uneven fall in 2H22 inflation. The largest disinflationary impulse is expected to come in the US followed by EM, while Europe inflation will remain higher due to Energy prices,” Kolanovic said in a client note.
In addition to declining inflation, the rebound in equities is underpinned by bearish positioning. Moreover, JPM’s top strategist sees the U.S. midterm elections as a potential positive catalyst for risk assets in Q4.
Kolanovic also argues that the Fed would be making a mistake if it increases the risk of a hawkish policy error and endangers the market stability.
“We remain of the view that the 2020s will look nothing like the 2010s, and many of the investment trends – e.g. Tech, ESG, or low vol investing – will be turned upside down,” Kolanovic concluded.
Results from last week’s survey conducted by JPMorgan show that equity exposure/sentiment is ~44th percentile with only 38% of investors planning to increase equity exposure, which is a record low.
77% of survey respondents said we’ve seen the peak in US core CPI. As far as expectations for Jackson Hole are concerned, every second surveyed investor expects no change in policy and tone from Powell while 43% expect a more hawkish Fed.
