JPMorgan equity strategists told investors to “stay bullish” in a note on Tuesday, as it argued that positive catalysts are not exhausted.
The bank said there is further upside for stocks despite a strong run so far, having argued in its December Chartbook that the dip driven by the Omicron variant scare should be bought into.
“The new variant is proving to be milder than prior ones, and the adverse impact on mobility much more manageable,” JPM said. “Fundamentally, the growth backdrop is likely to stay supportive, China activity deceleration is by now largely behind us, and CESIs in all key regions are back in positive territory.”
JPM said the eurozone in particular stands out, with 2022 real GDP forecast at 4.6% year-on-year, above the US for the first time since 2016.
“There are signs of supply constraints potentially passing their worst point, and of power prices surge easing. Inventories are very low and their replenishing should be a tailwind. The labour market, key driver of consumer, is staying strong,” it said.
JPM said it continues to see gains for earnings and reckons that consensus projections for 2022 will again prove too low.
“Credit spreads remain very well behaved. Finally, we don’t see key central banks getting incrementally more hawkish, relative to what is already priced into the futures markets.”
JPM also noted that inflation forwards and bond yields continue to show a large gap, which could close from both sides.
“Regionally, we look for a better showing from EM/China, as well as the UK, where we held a cautious stance for six years. At sector level, we believe that curve flattening since March is overdone, and a likely pickup in bond yields will lead to more cyclical leadership entering 2022.”
