Stocks 'set to recover from here', JP Morgan says

Equities are likely to "recover from here" as long as a recession does not ensue, not least now that the Federal Reserve has reached "peak hawkishness", said strategists at J.P. Morgan.

Peak hawkishness from the US central bank was to be seen in the decline in two-year US Treasury note yields and Fed futures since policymakers' last met, even as the yield curve had steepened.

Furthermore, the fact that Growth stocks had lost 23% versus their Value peers from their most recent highs meant that peak aggressiveness from the Fed should support the broader equity indices.

"To be sure, we remain [overweight] Value vs Growth, but we would not expect Growth style to be down in absolute terms from here," they added.

Earnings growth was also proving "resilient" despite the "very downbeat" outlook from investors for corporate profits.

Indeed, earnings per share revisions in Europe and the US had turned positive again over the past three weeks and profit margin delivery remained better than feared.

"Forward P/Es are down 30-35% on average from last year highs. This puts the focus on earnings, which need to start falling to confirm the omnipresent bearish views.

"[...] Put together, if recession doesn’t come through, multiple derating was already very substantial, and given the reduced positioning and downbeat investor sentiment, equities stand to recover from here."