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Sell bonds and stocks and buy oil - JP Morgan

Published 14/11/2023, 09:18 am
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JP Morgan strategists are telling clients to sell bonds and stocks and move into commodities, specifically oil.

In a note to clients Monday afternoon, the strategists said the recent higher in equities and bonds was technical in nature, boosted by short covering and momentum strategies. They said the equities’ risk-reward remains "unattractive."

"... restrictive monetary policy is likely to remain in place for some time, equity valuations are rich, and consumers are likely to begin to retrench given a fading liquidity buffer, high rates across a range of consumer loan products, tightening lending standards, and rising delinquencies," the strategists commented. "This is likely to drive demand destruction, and weakening pricing power and margins for corporates in the coming quarters, and suggests that consensus expectations that look for 12% EPS growth next year appear overly optimistic."

Meanwhile, the sharp move lower in oil over the past month is making them more positive on energy as both a geopolitical hedge and given lighter positioning.

"We maintain a defensive allocation in our model portfolio, with an UW in equities and credit vs. OW in cash and commodities," the strategists stated. "This month, we take profit on our long duration exposure in government bonds given their strong rally, increasing supply, dovish Fed pricing and increased investor positioning. We use the cut in bond allocation to fund an increase in our commodity allocation given still high geopolitical risk, and the significant sell-off and weaker positioning in energy, and we incrementally shift our within-commodity allocation into energy."

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