JPMorgan strategist Mislav Matejka is advising investors to view market weaknesses, particularly those driven by geopolitical turbulence, as buying opportunities. He argues that the risk of a prolonged stagflationary shock is overstated and that equities are supported by strong earnings and a constructive growth-policy environment. Matejka suggests using dips to add exposure over a three-, six-, and twelve-month timeframe, despite the MSCI World index's V-shaped rebound masking underlying fragility and narrow market breadth with many consumer plays lingering at lows.
Matejka's call also considers the ongoing US-Iran geopolitical situation, suggesting that an oil spike and resulting market weakness might not be sustainable. He believes that any escalation could paradoxically make an off-ramp more likely, and that dips driven by such shocks should ultimately prove to be buying opportunities for long-term investors. JPMorgan first advised clients to add exposure on March 23, noting a 4% return in the S&P 500 since then, driven by de-escalation hopes and rising EPS estimates.
While US valuations remain stretched at 21 times forward price-to-earnings, JPMorgan favors international markets and emerging markets over developed markets. Within regions, the UK is highlighted as a compelling option due to its large valuation discount compared to other regions and the highest dividend yield globally, making it a good place to hide during risk-off periods. Matejka expects international stocks, emerging markets, small caps, and value to resume outperforming, with EM inflows likely to resume in the second half of the year.
The bank believes the current macro environment differs significantly from 2022 regarding inflation pressures, corporate pricing power, real rates, and the labor market. JPMorgan anticipates that central banks will look through an expected 1.5 percentage point rise in year-on-year inflation and reiterated a call for long duration regardless of how geopolitical conflicts evolve. This outlook is despite JPMorgan CEO Jamie Dimon's more cautious tone regarding volatile energy costs, persistent global conflicts, and policy uncertainty, highlighting a divergence between the strategy desk and the corner office.
