- Investors should take some profit after US stocks staged a rally last month, said JPMorgan on Monday.
- Quant guru Marko Kolanovic said the house view is still "pro-risk" and overweight equities.
- The investment bank trimmed its 2022 S&P 500 outlook to 4,900 from 5,050.
US stocks have managed to partially rebound from big losses so far this year, bringing investors to a point when it's time to take some profit as prospects for slower economic growth and other hazards hang over the market, JPMorgan's chief global markets strategist Marko Kolanovic said Monday.
JPMorgan is still "pro-risk" and holds an overweight recommendation on equities as it sees support in part from a solid labor market, healthy consumer and corporate balance sheets, and fiscal efforts by several countries to offset part of the pull from high energy prices.
"However, markets have recovered a majority of their early-March sell-off and thus no longer look oversold, while risks remain elevated around geopolitics, policy tightening and growth. As such, we take profit on the tactical increase to our equity OW initiated last month," wrote Kolanovic in the note.
The investment bank lowered its S&P 500 target for 2022 to 4,900 from 5,050 previously, as macro and geopolitical shocks coincide with central bank hawkishness. The Federal Reserve, which oversees the world's largest economy, has embarked on what should be a series of large and fast-paced interest-rate hikes to bring down high inflation that's sitting near 8%.
Meanwhile, Russia's war on Ukraine continues into its second month. As Russia is a major commodities producer, mounting supply concerns have sent prices surging for a wide range of commodities.
"While Fed tightening remains the strongest headwind, we believe the market still has upside. Investor sentiment is extremely poor and positioning very low," and the economy is "still normalizing" from multiple COVID waves. Risks are "largely frontloaded, setting up for a potentially more normal second half," said Kolanovic.
The S&P 500 on Monday was around 4,433.
JPMorgan reiterated its overweight position in the healthcare sector as it features, among other things, high margins and reasonable valuations.
Equity risk-reward is better than sentiment suggests, said Kolanovic, as geopolitical shocks don't dominate markets for long, and Fed monetary policy tightening "should not be problematic in the early stages."
The bank is mindful of the yield-curve inversion signals of an upcoming recession. "[But] in our view these are not an immediate catalyst for de-risking but rather an advance warning that the cycle is drawing to a close."
