Source: Jin10 Data
Author: Zhu Yu

Since October 2022, JPMorgan's strategic analysts have been pessimistic about the stock market.

However, according to a report released by JPMorgan's Chief Global Equity Strategist Dubravko Lakos-Bujas on Tuesday, this situation seems to be changing.

Although Lakos-Bujas did not update the company's target price of 4200 points for the S&P 500 index by the end of the year (implying a significant 27% drop from current levels), he did suggest that investors reduce their bearish sentiment towards the market.

Lakos-Bujas said, "We are adjusting our long-term bullish view on defensive stocks and shorting cyclical stocks."

Interest rate cuts by the Federal Reserve and China's introduction of new stimulus measures are driving Lakos-Bujas' change in sentiment.

Lakos-Bujas stated: "Policy support from the world's largest economy comes at a time when the U.S. growth unexpectedly shows resilience, accompanied by tight labor markets, continued government deficit spending, and record highs in stocks, credit, and housing prices."

JPMorgan also highlighted the overall situation of American consumers, with their total wealth increasing by $50 trillion since the outbreak of the Covid-19 pandemic.

According to the data from the Federal Reserve, American consumers own approximately $185 trillion in assets, primarily composed of stocks, bonds, property, and cash, while debt is only $21 trillion. This is a healthy balance sheet.

Lakos-Bujas is also inspired by robust corporate earnings growth, expecting earnings growth to accelerate from 3% in the past two years to 12% in the next two years.

Lakos-Bujas explained: "American companies are increasingly focusing on using pre-tax income for capital expenditures rather than returning post-tax profits to shareholders through buybacks, which is also stimulating the economy."

Part of the reason is the prosperity of artificial intelligence technology, with large tech companies expected to accelerate their research and capital expenditure investments, exceeding $500 billion annually.

Lakos-Bujas said: "In our view, these driving factors, along with the American exceptionalism, are helping to offset the imbalanced macro weakness."

He added: "While assuming it's still too early to call this a turning point, it does indicate that there is a low likelihood of an economic recession in the short term, especially with unexpectedly strong job growth and a declining unemployment rate breaking the trend of job market slowdown."

However, Lakos-Bujas is not completely bullish on the stock market. The strategist warned that the presidential election in November may bring volatility to the market depending on the outcome, and lower interest rates may pose resistance to corporate profits, especially in the financial sector.

Editor/Jeffy