J.P. Morgan says weakness in stock market indices will not persist
By Alexander Bueso
Date: Monday 11 Oct 2021
(Sharecast News) - Equity strategists at JP Morgan reiterated their forecast for a "significant" internal rotation heading into year-end, further telling clients that fears of stagflation might soon ease and that weakness in stock market indices was unlikely to last.
Their forecast was based on a rebound in bond yields driving that rotation, but with the growth outlook seen by some as mixed at best, there were concerns about the durability of that rotation.
That was especially true in the case of an energy, inflation or Fed shock, JP Morgan said.
Yet according to the investment bank, stagflation fears might be set to ease both from the growth as well as the inflation side of the equation.
Citi´s Economic Surprise Indices for the US, China and Eurozone were all likely to improve from their present negative levels, they argued.
As for the oil price, even with oil at $100 a barrel from here, headline consumer prices were set to halve by the back half of 2022.
"Consequently, while we finally got a 5% correction, after a year without one, we believe the weakness at the index level will not persist,"they explained.
The strategists also reiterated their 'overweight' stance on Energy and Banks and said the style rotation might now benefit the emerging markets, excluding China, space.
The latter was because China was now turning growth positive, some softening in the US dollar would be welcome and the differential between economic, profits and vaccination rates in emerging markets versus developed ones was starting to peak.
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