JPMorgan strategist Mislav Matejka is encouraging investors to stay constructive on equities, arguing that recent volatility should be viewed as an opportunity rather than a warning sign of a deeper downturn. He contends that concerns around a sustained stagflationary shock are likely overstated.
In a recent note, Matejka pointed out that the MSCI World index has already delivered what the bank called a “V-shaped rebound,” but cautioned that the strength may not be as broad as it appears.
“Current market breadth is very narrow and nearly all consumer plays are lingering at lows,” the note said, adding that “equities complacency is not all that clear cut.”
On the geopolitical front, JPMorgan suggested that escalating tensions in the Middle East may not necessarily prolong market weakness and could even accelerate a resolution.
“An oil spike and resultant market weakness might not sustain, as an escalation might in fact make an off-ramp more likely,” the bank said.
For investors with a medium-term horizon, JPMorgan continues to recommend using dips to build positions over the next three, six, and 12 months.
The bank highlighted several supportive factors for equities, including solid corporate earnings, a still-accommodative growth policy backdrop, and the possibility that bond yields may struggle to extend their recent rise.
However, U.S. equity valuations remain elevated at roughly 21 times forward earnings. As a result, JPMorgan maintains a preference for international and emerging markets over developed markets.
Among those, the U.K. stands out, according to the bank, offering both relative value and income appeal. It described the market as “a large valuation discount vs other regions, as well as the highest dividend yield globally,” adding that it could serve as “one of the very good places to hide during the risk-off episodes.”
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