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J.P. Morgan strategists trimmed risk in the bank’s portfolio to reflect “increasing risks around central banks making a hawkish policy error and geopolitics.”
The firm’s top quant sees headwinds increase amid mounting hawkish rhetoric from central banks and escalation of the war in Ukraine. These two major headwinds are likely to delay the economic and market recovery, the strategists told clients in a note.
Despite lowered active weights, the strategists remain generally positive on stocks amid “extremely weak investor positioning and sentiment,” which should likely limit further downside. Here, the strategists highlight the market’s reaction to yet another red-hot CPI last Thursday.
“While we remain above-consensus positive, our targets may not be realized until 2023 or when the above risks ease. Notably, volatility remains high and the direction of Bond yields is likely to remain a big driver of returns near term,” the strategists added.
Earnings are likely to remain pressured by FX headwinds with JPM currency strategists now seeing EUR/USD weakening to 0.90 in Q1 2023.
