JPMorgan Chase & Co (NYSE:JPM) has suggested the economic outlook may not be as gloomy as everyone seems to be making out and the slowdown may be less significant than first thought.
“ [While] our M1 lead indicator points to further PMI weakness, and the earnings are finally having a reset, with negative weekly EPS revisions, we believe that risk-reward for equities is not all bad as we move into year-end,” it said in a note.
JP cited several factors that could help improve the risk-reward for stocks in the second half of the year.
Weak dataflow can now be deemed as good, leading to a policy pivot [ie not such big rises in interest rates], with the activity downturn not thought to be too deep.
Valuations of stocks look attractive – both in absolute terms and relative to fixed income – said analysts at the bank while investor sentiment is overly bearish.
The investment banker expects its call that the Federal Reserve has likely peaked in hawkishness to gain traction.
“Post the still likely outsized September hike, Fed is expected to turn much more sensitive to incoming dataflow,” it said, before adding: “This is supported by inflation forwards {trends] which have stabilised.”
Another support is that consumers are likely to be cushioned somewhat by the excess savings they accumulated during the pandemic, which is ideal given that savings rates are “materially below long term averages.”
JPMorgan also anticipates the global downcycle to be sporadic with China’s activity already starting to pick up for the better.
Housing activity and prices have weakened rapidly but are tipped to stay resilient, with stocks at low levels and the labour market expected to soften but remain robust in the long term.