Marko Kolanovic said in a note to clients on Monday that the Federal Reserve’s hawkishness “leaves stocks oversold.”
Kolanovic explained that the global inflation trajectory is becoming “even more central for tactical asset allocation.” As a result, JPMorgan believes it could keep volatility elevated until the next set of CPI releases. However, the firm notes encouraging signs on the inflation front with declining core goods as “supply chains normalize further and the strong dollar puts downward pressure on input prices, lower Energy prices, and falling leading indicators on rents.”
JPMorgan also believes “some pre-conditions for a market bottom are falling into place.”
“Stocks are looking increasingly cheap and approaching deep-value outside of the US, and positioning is extremely depressed,” Kolanovic added.
“Stocks and bonds continued to sell off last week on central bank hawkishness. The hawkish Fed outcome with significant upward revision to the dots leads us to now expect a terminal rate of 4.5% by early 2023. While the market has now settled into a view that Fed will continue with outsized hikes, we don’t believe one should keep extrapolating the hawkish policy stance direction.”