JP Morgan warns: the stock market rally is about to end, better sell now.
Al rally who recorded the stock Exchange since the beginning of the year 2023, he does not have a long way to go. This is the forecast made by the experts of JP Morganwho believe that the first quarter will mark the “peak” of the market this year and that when it ends there will be a “soft spot” with “weaker” activity and profits. His advice is therefore clear: SELL NOW.
In a recent report, U.S. bank strategists note that positioning is “normalizing rapidly,” so it is now The question now is “whether there will be a fundamental confirmation of the uptrend”. and, therefore, the rally will continue. At JP Morgan, we believe that “it will eventually fail”, so the strong rallies that stocks have seen will come to a halt.
“We expect a soft spot in the second and third quarters, with weaker activity and earnings, and therefore believe that the first quarter will be a market high,” they say. “We advise taking advantage of the current strength to reduce exposure. »which they then recommend.
Why do they recommend selling? Quite simply. As they said, “apart from a probable further deterioration in fundamentals in the second half of the yearThe possible twists and turns could come, among other things, from American policy, because the market is getting complacent“. These analysts point out that the VIX (CBOE Volatility Index), also known as the “fear index”, “is near the bottom of the range, at only 18x”.
JP Morgan claims that some of the support he has counted on so far the equity market (bond yields seem to have peaked, China’s reopening has sparked optimism, gas prices in Europe have fallen thanks to warm temperatures and abundant supply…) “not exhausted, far from it”.but nevertheless identifies five questions that the stock market will face in the near future that will be key to its performance:
1) The recession is no longer a problem.
“Investors no longer think of a recession. recessionbut it is likely that the dynamism of activity, except in China, should remain weak.“, underlines the American bank. In fact, they point out that consumers’ excess savings cushion “has been eroded” and that the money supply in the United States and Europe “continues to contract”, so the news is not as good as you might think so.
Especially since China “is a relative bright spot”. While they believe it is appropriate to position for the reopening of trade, “it is unlikely that there will be a fundamental acceleration in credit, beyond the base effects of the reopening”, comment these analysts.
2. A pause from the Fed, but not a “pivot”.
The bank’s strategists also consider it likely that the Fed US Federal Reserve (Fed) “initiate a break” in the rise in interest rates at the end of the first quarter, “but we don’t see a pivot.”they say. They explain that the yield curve “remains strongly inverted, which is historically an ominous sign”.
3. the resilience of corporate earnings?
“Over the past two years We thought corporate earnings would hold, but that could start to change.“, say JP Morgan experts, who recall that profit margins are at record highs, currently well above pre-crisis levels, and that “pricing power is likely to deteriorate in the future “.
In fact, they point out that the results The report also notes that the typical upward revisions one sees as one progresses through the reporting season “have not occurred so far,” which is sobering.
4. Not exaggerated valuations
Another point highlighted by JP Morgan is that of valuations. ” International equity valuations are not overvalued.compared to the norm. Even with earnings appreciation, multiples for international equities don’t look too demanding,” he notes, while acknowledging that the US “is relatively much less attractive in this regard.”
“We stay in Europe for a long time, and maintain our overweight at the FTSE100 The UK and the MSCI China,” they comment.
5. Sentiment indicators change
JP Morgan recalls that the sentiment and positioning indicators “were very pessimistic 6 months ago”, but that today the situation “is changing”. “We observe that investors now feel more comfortable chasing the market.“, they conclude.