JPMorgan Strategists See Less Stress on Equities in H2

The sell-off that sent US stocks plunging into a bear market last week amid red-hot inflation data and a sharp Federal Reserve rate hike will likely ease in the second half, according to JPMorgan Chase.

“The Fed’s top hawk call was delayed, but not broken, for the second half,” strategists led by Mislav Matejka wrote in a note. “The Fed’s continued adverse price review has understandably hurt markets, but that doesn’t have to be the general template.” They also expect inflationary pressures to ease in the second half of the year.

Stock markets in the US and Europe have been choppy since April, with stubbornly high inflation and hawkish central banks raising the specter of a recession. The drop has prompted Wall Street strategists to lower year-end targets for the S&P 500: They expect the index to mostly recover, finishing just 3% lower for the year, according to the latest poll from Bloomberg.

While the Fed’s so-called dot plot still suggests an aggressive pace of hikes, “if the Fed were to start meeting expectations, rather than surprising to the upside, that could go a long way toward stabilizing market sentiment,” the strategists said.

They reiterated their recommendation to add direct exposure to China and said they remained overweight emerging markets relative to developed markets. Among the latter, they are neutral on US stocks and overweight the UK and the euro zone.

Among sectors, strategists said they were overweight miners as valuations looked attractive despite their recent outperformance. The group also offers “exceptional” dividend yields at 10%, they said.

Reviewer overview

The sell-off that sent US stocks plunging into a bear market last week amid red-hot inflation data and a sharp Federal Reserve rate hike will likely ease in the second half, according to JPMorgan Chas - /10

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