JP Morgan sees further gains for stocks after short-term consolidation

Strategists at JP Morgan recommend clients add to their positions in global equities in anticipation of further upside in the back half of the year.

Their main argument was that the year-to-date rally had been under-owned, while company earnings and global Purchasing Managers' Indices were set to improve in the second half.

"We think that the ytd rebound will have legs when earnings and PMIs turn higher into 2H," they said.

The rate of growth in money supply, a key determinant of stock prices, was also set to improve.

In China, they said, so-called 'narrow' money or M1 "is likely to imminently inflect higher" and in the US and Eurozone "we think most of the weakness should be behind us by now, as the differential vs trendline is now very large," Mislav Matejka and his team said in a research report sent to clients.

"The strength of the relationship between M1 measures and the PMIs, P/Es and stock prices varies by region.

"Eurozone M1 is strongly correlated to Euro PMIs, with M1 leading, and suggests that the worst of falls in Euro PMIs might be behind us. Overall, we believe M1 measures will bounce, and that, post a short-term consolidation, equities will continue to build on their ytd run."