- Date : 12/09/2022
- Read: 3 mins
This mid-year rally is sustainable as per JP Morgan!
The year 2022 started with high volatility in the stock markets. In the backdrop of the Russia-Ukraine war, high inflation, an increase in interest rates by Central Banks globally and the US-China tensions with respect to Taiwan, the year started pretty weakly. But since the middle of June, we have seen a 15% rally in the S&P500. The US stock market recovery has inspired confidence globally, and the Indian markets have also recovered from their bottoms this year.
But, the million-dollar question is if the rally is sustainable. If you believe JP Morgan, this rally is sustainable. As per their analysis, the situation has improved, and this rally will continue till year-end. Their reasons are depressed valuations, depressed investor sentiment and peak Fed hawkishness. In their analysis, the weak data will push the markets higher as the weak data can cause the Fed to pivot its policy. They believe that peak Fed Hawkishness is ending, and the Fed pivot can help the markets to continue the rally.
10 Reasons why JP Morgan believes the current rally is not a bear market rally.
As per JP Morgan, this mid-year rally does not resemble a bear market rally because of the following 10 reasons:-
1. Reasonable Valuations- The valuations are reasonable as per the investment bank, and their analysis is that the markets are at a 20% discount to fair valuations.
2. Lower positioning amongst the clients- Their analysis is that cash levels across the clients are high.
3. Bearish sentiment- The general bearish sentiment of the market participants is a good contrarian indicator to go bullish on the stock markets.
4. The peak of Fed Hawkishness- The firm believes that Fed hawkishness has peaked.
5. The peak of the US Dollar- The rally in the US dollar seems to be ending as per the analysis.
6. Activity indicators are in contraction territory- The bank balance sheets are strong despite the contraction indicating the recovery can be good.
7. Housing prices have levelled off- Although the prices have come down, as per the analysis by JP Morgan, the prices are stabilizing.
8. Earning revisions are negative- The negative earnings revision is likely to change soon as per the firm.
9. Consumers have high savings- Because of Covid, the savings rates are high, which can return to long-term averages.
10. Global downcycle unlikely to be synchronized- With China recovering, the downcycle is likely turning for the better.
What to do as an investor?
If JP Morgan is to be believed, this recent uptrend might succeed. As an investor, you should be invested in the markets across cycles to benefit from long-term compounding in the stock markets. Timing the markets is difficult, and you should spend more time in the market rather than timing the markets. The reasons given by JP Morgan point to a sustained rally till year-end, and if you are invested in the markets, holding on to the stocks might be a good strategy. Learn How to evaluate the country specific risks when investing in International markets?
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