When it comes to BTFD there’s nobody quite like JPM on Wall Street. All the way through this developing stocks bear market, JPM has been telling clients to buy the dip. It does so again today:
The Russia/Ukraine crisis will continue to produce market volatility, but the direct impact on corporate earnings should be small. Indirect risks are more substantial, given effects of higher commodity prices on inflation, growth, and consumers; however, one silver lining is that the crisis forced a dovish reassessment of the Fed by the market. With the possibility of a 50bp hike in March largely priced out, we continue to assume a ‘moderate’ hiking path. We downgraded Russia to N, but remain optimistic on EM outperformance, noting other beneficiaries of higher oil prices such as Saudi, Colombia, Brazil, and Thailand. However, webelieve investors should underweight the Euro area in both the currency and the equity space given its vulnerability to any further escalation. While Growth stocks may present a tactical opportunity given how much they sold off, medium-term we favor Valueandcommodity-linked segments in an environment where real rates continue to rise and given their valuation cheapness.
We remain tactically neutral on USTs given geopolitical tensions and stretched short positioning, but tightening labor markets and above trend growth still support higher yields in the medium term. In Credit, HG faces uncertainty but valuations have already moved significantly. We downgraded CEMBI to Neutral due to therisks, but see room for Europe HG and HY spreads to tighten from here. We revised our Commodity price forecasts 10-20% higher across the board given the unfolding geopolitical crisis. While we see oil prices going to $120/bbl in Q2, the potential for an Iranian deal couldoffer some relief.
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