There are a couple reasons why investors should use the weakness in markets as a good buying opportunity even in front of notable risks like the Federal Reserve raising interest rates to fight inflation and the ongoing Russia-Ukraine war, argues strategists at JPMorgan.
“Despite the current tumultuous conditions, we believe a lot of risk is already priced in, sentiment is depressed and investor positioning is low, so we would add to risk with a medium-term horizon. We would advise against selling off positions indiscriminately, and rather suggest finding segments that could be hedges for the current situation,” said Marko Kolanovic, JPMorgan chief global market strategist.
The closely followed strategist recommends investors favor commodities and energy stocks and surprisingly, China stocks.
“We believe that the past month’s correction has induced too much negativity in markets, e.g., reflected by our market-implied recession probabilities, on the fear that growth will be severely affected by the war. We stay with a pro risk stance as we do not believe that we will see a recession or that we have entered a sustained bear market,” Kolanovic adds.
Despite JPMorgan’s optimism on stocks, the reality is that investors remain very nervous on adding extra risk with energy prices at sky-high levels and the West slapping Russia with sanctions. The uncertain path of Fed policy is also front and center on the minds of investors.
The Dow Jones Industrial Average (^DJI) and S&P 500 (^GSPC) are down by about 5% each so far in March, according to Yahoo Finance Plus data. The Nasdaq Composite (^IXIC) is off 6.2% on the month.
Yahoo Finance’s Jared Blikre reports the Dow and S&P 500 are in correction territory and the Nasdaq Composite is mired in a bear market.
From their respective record highs, the Dow is down by 11%, the S&P 500 is down 13.5% and the Nasdaq Composite has shed 22.5%.
“The bond markets is getting very concerned about the growth outlook and growth prospects. That being said, we are seeing nominal yields rise across the board. Not just in the United States, but across the G-7 economies in general which is telling you that I think a lot of traders are worried about persistently high inflation,” said DoubleLine portfolio manager Bill Campbell on Yahoo Finance Live.