JPMorgan Advises Investors to Buy Market Dip as Current Selloff Differs from 2022 Conditions

JPMorgan’s equity strategy team has advised investors to capitalise on the current market weakness, asserting that the economic conditions underpinning the recent selloff bear little resemblance to the stagflationary environment of 2022 that inflicted sustained losses across both equity and bond markets.

In its April chartbook, strategist Mislav Matejka acknowledged that sentiment had turned sharply bearish and positioning had been reduced to levels approaching those observed around Liberation Day. However, he noted that the fundamental picture entering the Iran conflict had been strongly supportive, and the bank does not view stagflation as the most probable outcome in the second half of the year.

The critical distinction from 2022, according to JPMorgan, is that wage growth is now decelerating rather than accelerating. Corporates are unlikely to possess the ability to raise prices in the current environment, which reduces the risk of an entrenched inflationary spiral of the kind that compelled central banks into aggressive rate rises four years ago.

Regarding the conflict itself, the US investment bank stated that headwinds against a prolonged war lasting months rather than weeks, spanning energy prices, political constraints and military considerations, were not diminishing. This suggests the bank sees meaningful scope for a resolution or de-escalation that could rapidly reverse the recent risk-off movement.

The bank cautioned that if oil prices rise further, equities will fall more. Nevertheless, it said the risk of being caught offside by a positive headline was significant for anyone trading on a short-term basis, and that investors with a three, six or twelve-month horizon should be adding exposure to the weakness.

On a regional basis, JPMorgan said its preference for international markets and emerging markets over the United States, flagged in its November Year Ahead publication, remained intact. It noted that MSCI World ex-US had risen 11% year-to-date ahead of the conflict against flat returns for US equities. Whilst the US had briefly outperformed in the initial risk-off phase, American equities had stalled again more recently.

The bank also maintained its preference for value stocks and small caps over growth.