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JPMorgan’s top strategist had something positive to say about stocks for the first time in a long time.
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JPMorgan’s chief equity strategist Dubravko Lakos-Bujas said investors need to become less defensive.
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“While it is too early to assume this is a turning point, it does suggest that a recession is unlikely in the near term.”
Strategists at JPMorgan were bearish on the stock market since October 2022.
But that seems to be changing, according to a note from Tuesday JPMorgan head of global equity strategist Dubravko Lakos-Bujas.
While Lakos-Bujas has not updated his company’s year-end S&P500 Price target of 4,200, which represents a steep decline of 27% from current levels, he did advise investors to become less bearish on the market.
“We are neutralizing our long defensive and short cyclical view,” Lakos-Bujas said.
The Federal Reserve cuts interest rates and China introduces new stimulus measures are the driving force behind the change in Lakos-Bujas sentiment.
“Policy support from the world’s largest economies comes at a time of surprisingly resilient U.S. growth with tight labor markets, persistent government deficits and record highs in stocks, credit and housing,” Lakos-Bujas said.
The bank also pointed to the solid health of American consumers, who have have collectively added $50 trillion to their wealth since Covid.
According to Federal Reserve data, U.S. consumers have about $185 trillion in assets, consisting mostly of stocks and bonds, homes and cash, and only $21 trillion in debt. That is a healthy balance.
Lakos-Bujas is also encouraged by solid corporate earnings growth, which is expected to accelerate from 3% in the past two years to 12% in the next two years.
“US companies have increasingly focused on recycling pre-tax income into capital expenditures rather than returning after-tax profits to shareholders through buybacks, which also helps stimulate the economy,” Lakos-Bujas explains .
Part of this has been driven by the rise of AI technology, with mega-cap tech companies expected to accelerate their R&D and capex investments to more than $500 billion per year.
“We believe these factors, together with American exceptionalism, help offset uneven macro weakness,” Lakos-Bujas said.
He added: ‘While it is too early to assume this is a turning point, it does suggest that a recession is unlikely in the near term, especially as surprisingly strong job growth and a decline in unemployment represent a slowing trend have made inroads into the economy. labor market.”
But Lakos-Bujas didn’t turn completely bullish on the stock. The strategist warned that November’s presidential election could bring volatility to markets depending on the outcome, and that lower interest rates could be a headwind for corporate profits, especially in the financial sector.
Read the original article Business insider