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Bull market ‘far from over’ as dovish Fed possible


  • The stock bull market is “far from over” as the Fed is unlikely to be as hawkish as investors expect, JPMorgan said in a Monday note.
  • The bank said any conflict between Russia and Ukraine would likely trigger a dovish reassessment by central banks.
  • “We believe risky asset markets have mostly adjusted to monetary policy changes to date,” JPMorgan said.

the


bull market

in stocks is ‘far from over’ despite growing investor concerns over hawkish politics


Federal Reserve

and geopolitical tensions between Russia and Ukraine, JPMorgan said in a Monday note.

The bank believes a lot of bad news is already priced into the markets, and any dispute between Russia and Ukraine would likely lead to a dovish revaluation by central banks. On Tuesday, Russia said it had withdrawn troops from the Ukrainian border.

“We believe risky asset markets have for the most part adjusted to changes in monetary policy, that short-term rates have likely moved too far beyond what central banks will ultimately offer when increases this year, and that a pivot in Chinese policy can offset much of the impact of central bank tightening on developed markets,” said JPMorgan’s Marko Kolanovic.

Market expectations for the number of Fed rate hikes of 25 basis points in 2022 soared to more than five last week after January CPI data showed inflation had peaked in 40 years. Kolanovic expects the inflation theme to likely continue into 2023 and said investors should therefore maintain exposure to energy and financial stocks.

But rising interest rates and rising inflation aren’t enough to trigger an economic recession later this year because it doesn’t correlate with the broader macroeconomy, according to Kolanovic, who notes that as COVID-related restrictions are beginning to ease, pent-up consumer and business demand is expected to materialize.

“We think it is wrong to position ourselves for a


recession

given still extremely favorable financing conditions, very strong labor markets, under-leveraged consumers, strong cash flows for businesses and strong balance sheets for banks,” he explained.

With the S&P 500 down 8% from its all-time high, Kolanovic expects a rebound in risk areas of the stock market on the back of improved sentiment from dejected investors and inflows of stock buybacks. companies and systematic funds.

“We consider this market sell-off to be overdone. The stock market is not only in correction, it is already in


bear market

Recession-free territory in sight,” Kolanovic said, pointing to the 20% correction in small-cap stocks.

“We still see 2022 as a year of economic recovery, with double-digit earnings growth and undemanding valuations supporting [small and mid cap stocks]“, he concluded.

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