Any weakness in stocks unlikely to be 'material or prolonged', JP Morgan says
A correction in stockmarket prices was possible but any weakness was unlikely to be "material or prolonged", said strategists at JP Morgan, who advised clients to use any weakness on the back of seasonals and the US President to add to their positions.
In a research note sent to clients, strategist Mislav Matejka conceded that the strong run in shares year-to-date, which had left global equity markets near highs, the expansion in valuation multiples and a turn in seasonal patterns might suggest that weakness lay ahead.
On top of all of that, the latest tweets from the US President were threatening to reignite the trade uncertainty.
Even so, Matejka said: "While the above suggest a correction is possible, we do not expect any prospective weakness to be material, or prolonged. Investor positioning is still light and the equity rebound is likely to get a fundamental support as we move into 2H.
Indeed, he continued to anticipate that stocks around the world would hit new highs over the summer, pointing to signs of economic stabilisation in the data and cautious central banks.
On average, Matejka explained, the jobs market tended to lead recessions by roughly a year, but for now unemployment continued to plumb new lows.
"The latest spike in trade uncertainty might end up being no more than a short-lived negotiating tactic. Look for the rally to broaden to Value – we reiterate last week’s upgrade of Banks."