(Bloomberg) — According to strategists at JPMorgan Chase & Co., stock investors who are overly optimistic about the economic outlook are preparing for disappointment.
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It is too early to say that a recession is indisputable after the Federal Reserve’s aggressive strengthening campaign, especially as the impact of monetary policy on the economy could be far-reaching. one to two years late, a research team led by Mislav Matejka wrote in a note. The central bank may just pivot to deal with a much more negative macroeconomic backdrop than the market is expecting, they said.
“Historically, equities have not typically bottomed out before the Fed cuts and we have never seen a low before the Fed even stopped bullish,” the strategists wrote on Monday. “The damage has been done and the fallout may still be ahead of us.”
Global stocks have rallied this year as hopes of a Fed pivot, China’s reopening and Europe’s easing energy crisis have supported. But signs that inflation remains a persistent problem in the US are starting to emerge again, weighing on markets. Comments from belligerent Fed officials also raised concerns that US interest rates could peak higher than previously expected.
Matejka said the first quarter could mark the highest for stocks this year, Matejka was cautious about the outlook for stocks late last year after remaining positive for much of 2022. He predicts the upside momentum will wane amid warning signs. from key currency indicators such as sharply inverted yield curves and reduced money supply in Europe and the United States.
JPMorgan strategists are not alone in their pessimism. Michael Wilson of Morgan Stanley – which ranked first in last year’s Institutional Investor survey when he correctly predicted the stock sell-off – said the bear market rally “has turned into a frenzy”. Speculation based on the Fed pause/pivot is not happening” in a note on Sunday. And last week, strategists at Bank of America Corp. headed by Michael Hartnett said the late US recession will hit stocks in the second half of the year.
On Monday, strategists at Citigroup Inc. led by Robert Buckland said they will not chase the MSCI All Country World Index higher as it has traded at the top of their target range. They also say that most of the contrarian trades call for selling last year’s winners and buying losers that are bound to fail, adding that they favor oil stocks over stocks. technology has skyrocketed until 2023.
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