Home > JPMorgan says investors don’t have to fear a sharp sell-off

JPMorgan says investors don’t have to fear a sharp sell-off

JPMorgan analysts argue that despite the stock market’s rally to record highs, the “conditions for a large sell-off are not in place right now.”

In a note published Monday, strategists at the investment banking giant said that riskier stocks could be poised for more gains.  

As the S&P 500 notched a 69th record close for the year, the market surprisingly remains too cautious and bearish amid concerns about the Omicron variant. But according to the analysts, this should not be the case, even if markets continue to face negative impulses from a macroeconomic and health perspective.

The strategist also noted that while the Nasdaq Composite has seen a drawdown of just 7% since its 12-month high, the rot was much more pronounced at -38% among the indexes’ constituents.

He stated that while some observers might see the drawdowns as a harbinger of some sort of intra-cycle correction of 10-20%, the bank’s view is that this isn’t the case.

In their view, “investor positioning, record buybacks, limited systematic amplifiers, and positive January seasonals," are all suggesting that the market will likely not face a large sell-off.

"We find the current setup very attractive for high beta stocks,” JPMorgan’s Dubravko Lakos-Bujas said in a note quoted by Yahoo Finance.

Value and high beta stocks top picks

Among stocks outside of the big 10 US stocks, the analysts say investors could be well placed to look at value/cyclical picks and various high beta stocks. They suggest reopening stocks, including travel, leisure, and hospitality will do well given there have already been multiple -30% to -70% de-rating in these segments.

Energy as well as high beta stocks (including biotech, e-commerce, payments, and cybersecurity) also retain strong fundamentals and will continue to benefit from a stronger growth cycle and the huge addressable market sizes, Lakos-Bujas added.

He added that rotation into high beta stocks is historically stronger in January as seen over the past 30 years. JPMorgan, therefore, expects a similar trend to follow; with most of the upside pressure to come from funding currently lumped in low-volatility stocks.

Elsewhere, UBS Global Wealth Management regional CIO Kevin Tay says growth will remain strong over the first half of 2022. 

However, he notes the S&P 500 will likely lag the Dow Jones Industrial Average in the second half, pointing to potential drawdowns related to interest rate hikes.

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