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JPMorgan strategist Marko Kolanovic discussed the impact of Friday’s strong CPI print that led to a surge in yields, as well as the sell-off in crypto over the weekend, which are weighing on investor sentiment and driving the market lower.
The analysts believe the move lower in markets prices in more than enough recession risk, and a near-term recession will ultimately be avoided given consumer strength, COVID reopening/recovery, and policy stimulus in China. Moreover, the analysts see strong support from low investor positioning, depressed sentiment, and corporate buyback inflows.
While the analysts anticipate markets to recover year-to-date losses in H2/22 to finish roughly flat, they don’t advocate indiscriminate buying of broad risk markets. The analyst stated they keep a large overweight in commodities given their supercycle thesis and for the purpose of hedging inflation and geopolitical risks while remaining underweight credit vs. equities given the greater vulnerability of the former to higher interest rates and QT.
The brokerage favors segments, such as innovation, China, small caps, and biotech within Equities, which sold off strongly and are trading near record low relative valuations, while underweighting crowded/expensive segments such as defensives.