Strategists at J.P. Morgan believe that the risk-reward on offer in equities is not as “poor” as is currently fashionable to argue.
They also noted signs of so-called rotation amidst the recent stabilisation in financial markets.
Yet momentum in economic activity was even accelerating heading into the current shock, they pointed out.
Furthermore, labour markets were “very supportive”, the headwind from Covid was ending in the developed world and China´s policy stance had turned for the better.
As well, financial markets’ repricing of their expectations for the Fed might be reaching their point of ‘peak hawkishness’, especially versus what markets ad discounted, and headline inflation was soon to start heading lower, the latter for mechanical reasons.
“The start of Fed tightening should not be seen as a negative for stocks, at least not in the early stages,” they said.
Autos/Airlines, Banks and certain Growth names may have a “tactically” better showing because the repricing of expectations for the US central bank’s policy had been very aggressive.
“Both of these groups of stocks could help drive further overall market stabilization.”
