This week is crucial for assessing the sustainability of mega-cap US tech stock valuations, according to JPMorgan’s top strategists.
Investors expect significant earnings growth, anticipating earlier interest-rate cuts than Federal Reserve projections.
Analysts note that as long as the market remains narrow and tech-driven, the US will likely outperform the Eurozone. They prefer quality growth, particularly in US markets.
“Levels of market volatility are fairly low and investors can hedge some of the earnings, rate and geopolitical risks at a reasonable price,” analysts said in a note.
Analysts warn that core inflation in early 2024 might be higher than market expectations, potentially upsetting both bond and equity markets if inflation data are unfavorable.
They suggest that risk markets might then price in a higher chance of a “hard landing.”
“Levels of market volatility are fairly low and investors can hedge some of the earnings, rate and geopolitical risks at a reasonable price.”
Analysts also noted an extreme divergence between Chinese and developed world stocks.
“As we pointed out last week, the divergence between Chinese stocks and those of the developed world reached extreme levels. Developments in China over the past few days might indicate a turning point in this relationship,” they added.
Recently, JPMorgan reduced its overweight position in Treasuries to counter market overenthusiasm about early and aggressive rate moves.