This post was originally published on this site
The bank’s analysts believe the equities rally is “misplaced” given that the market hasn’t “priced in a material risk of failure to raise the ceiling to begin with, and as negotiations are far from complete.”
Even if the deal is reached, analysts remind investors that the risk-reward in stocks is “poor”. They cite the elevated risk of recession, stretched valuations, high rates, and tightening liquidity as key reasons underpinning their stance.
“A divergence remains between rates markets that expect the Fed to cut this year, equity markets that interpret those potential cuts as positive for risk, and the Fed’s more hawkish rhetoric. This gap is likely to close at the expense of equities, as rate cuts will likely only transpire from a risk off event, and if rates stay higher they should weigh on equity multiples and economic activity,” analysts wrote in a note.
As a result, they increased JPM’s cash allocation by 2% after cutting exposure to stocks and bonds by 1% each.
“Within commodities, we rotate from energy (given recession risks and a potentially fading China growth impulse), to gold following its recent sell-off (on its safe-haven demand and as a debt ceiling hedge),” the analysts added.
