- JPMorgan said fears about a correction in stock markets are overblown, despite the stellar rally.
- The bank’s analysts said equities should keep climbing and investors should buy any dips.
- They said vaccine rollouts, supportive central banks, and consumer savings were all positives.
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Investment bank JPMorgan has said it remains positive about global stocks and recommended that investors buy any price dips over the coming months, despite some fears about high valuations.
Although there are a few signs that equities could be due a fall, the rollout of coronavirus vaccines and recoveries in service sectors should keep boosting the market, JPMorgan said in a note Monday.
Global stocks have rallied sharply in 2021, despite some bouts of volatility, as investors have looked forward to the reopening of economies from strict coronavirus lockdowns.
Some commentators have suggested that stocks could be due a correction, which is technically a fall of 10% from recent highs.
Yet JPMorgan’s analysts, led by Mislav Matejka, said they were still confident about equities due to the growing pace of vaccine rollouts, large amounts of consumer savings, and supportive central banks.
“We would not be cutting stocks exposure on a 6-9 months horizon, and continue to see any dips as buying opportunities,” they wrote, adding: “We would not expect to see a more sustained pullback before Q4.”
Despite their bullishness, the analysts said there were some signs that markets are becoming overstretched. In particular, they pointed to the gold-copper ratio being at the bottom of a 10-year range.
As investors traditionally buy gold when they’re feeling nervous and copper when they’re feeling confident, the higher copper price compared to the lower gold price suggests markets are “complacent”, JPMorgan said.
But the analysts said the outlook for economies looks bright and predicted that a renewed tightening of COVID-19 restrictions is unlikely. They said services sectors – which are dominant in most advanced economies – are only just starting to pick up.
Crucially, the analysts said the ultra-supportive monetary policy from central banks, which has driven up stocks over the last year, is unlikely to end any time soon.
“Our economists expect G5 central bank balance sheets to continue growing faster than nominal GDP until at least the end of 2022,” they said. “In other words, cumulative excess liquidity will not roll over for a while yet.”