JPMorgan Chase & Co.'s trading desk is changing its tune on stocks and is now turning "tactically bullish," according to a note published Tuesday.
The analysts wrote that the cautious rating held since late January has proven to be too conservative, with the caution being mainly due to a lack of confidence in large-cap tech earnings, a lack of positioning tailwinds and the potential for a pullback from the performance of the past three months.
While JPMorgan insiders remain bearish on stocks, the trading desk admitted they were underestimating the profitability of tech stocks like Meta Platforms (META.O) and Amazon.com (AMZN.O). Meta's earnings report last Friday was a blockbuster, and its stock price soared 20%.
Analysts say the outlook has changed and big tech stocks are "decoupling" from bond yields. After Powell's hawkish comments last week, tech stocks continued to rise despite rising bond yields. And as the 10-year Treasury yield fell below 4%, the Nasdaq has risen 1.74% in the past five days.
Analysts noted that "there are few catalysts this week, and even hawkish Fed comments will not have a significant impact on the seven major technology stocks to continue to push the index higher, but the pace may slow down."
On top of that, economic growth remains strong. On Friday, nonfarm payrolls came in significantly better than expected, with the U.S. economy adding 353,000 jobs. Earlier, consumer spending and GDP data also turned red-hot.
“Above-trend growth should continue to translate into positive revenue growth... While margin compression is a known risk, this feels more idiosyncratic,” JPMorgan’s trading desk said.
However, the bank's broader outlook, as outlined by analyst Marko Kolanovic, is that investors should favor cash over stocks. "We remain cautious on risk assets and the broader macro outlook, citing the impact of the past 18 months of rate hikes on economic activity, weakening consumer strength, geopolitical headwinds and expensive risk asset valuations," he said in a note last month.
Article forwarded from: Jinshi Data