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JPMorgan’s top strategist urged clients not to increase exposure to risky assets as they are likely to stay under pressure.
Risky assets, including tech stocks, are set to trade “rangebound with a more pronounced downside risk,” he told clients in a note. This trend is likely to stay until the Fed starts cutting interest rates, which “will likely happen at some point next year,” he added.
“Catalysts for a proper pivot (cutting rates) are likely some combination of increased unemployment, declining inflation, and something breaking in financial markets. As an increase in unemployment is not likely to happen very soon, markets will be on edge between waiting for better inflation data, slowing economy and earnings, and rising risks of a financial accident,” the strategist wrote.
Still, he sees trading opportunities around the globe. He mentions China reopening as “an important trade,” which should also provide a boost for emerging market (EM) assets, alongside stalling USD.
At a sector level, the note highlights Energy, which “continues to have very attractive valuations, despite a strong run, and a significantly improved FCF yield.”
“We remain OW Miners, looking for further outperformance. Key metal inventories are low, the sector is a clear play on China reopening/weaker USD, and it still looks attractively priced, with very good balance sheets and a prospect of extraordinary capital return,” he concluded.
