Equity strategists at J.P.Morgan reiterated their view that the first quarter was likely to mark the high water mark for equity prices in 2023.
They expected “recessonary trading” to follow in the back half of the year and expressed a preference for low beta and increasing caution towards exposure to Cyclicals, Banks and Value.
“In a nutshell, we do not expect a fundamental improvement in equities risk-reward until the Fed is advanced with rate cuts,” Mislav Matejka said in a research note sent to clients.
In particular, their expectations were for bonds and stock prices to revert back to moving in opposite directions.
That would benefit low beta stocks instead of value ones, they explained.
“The point of the last Fed hike in the cycle is approaching, and we note that bond yields move strongly lower in the aftermath of last hike,” they added.
They also noted that it “would not be unusual” for the economy to see the best readings on the jobs market in the first quarter, before potentially recessionary behaviour manifesting itself in the second half of 2023.
Matejka also pointed out that the gap between dividend yields and bond yields was not “overly exciting” when compared to the historical average.
“Cash at near 5% is a very high hurdle rate to surpass to be long risk assets at this stage.”
