JPMorgan strategist Mislav Matejka is advising investors to stay focused on the bigger picture and view market pullbacks as opportunities, arguing that fears of a lasting stagflation shock may be exaggerated.
In a recent note, Matejka acknowledged that the MSCI World index has staged what the bank called a “V-shaped rebound,” but warned that the apparent strength may be misleading.
“Current market breadth is very narrow and nearly all consumer plays are lingering at lows,” the note said, adding that “equities complacency is not all that clear cut.”
Regarding rising tensions in the Middle East, JPMorgan suggested that additional escalation could actually increase the chances of a resolution rather than prolong instability.
“An oil spike and resultant market weakness might not sustain, as an escalation might in fact make an off-ramp more likely,” the bank said.
For investors looking beyond short-term volatility, the firm recommends continuing to take advantage of dips over a three-, six-, and 12-month horizon.
JPMorgan points to several supportive factors for equities, including resilient corporate earnings, a broadly favorable policy environment for growth, and the view that bond yields may struggle to maintain their recent rise.
That said, U.S. equity valuations remain elevated at around 21 times forward earnings. As a result, the bank continues to lean toward international and emerging markets over developed markets.
Within those regions, JPMorgan highlighted the U.K. as particularly attractive, citing its relatively low valuations and strong income appeal. The bank described it as “a large valuation discount vs other regions, as well as the highest dividend yield globally,” and added it could be “one of the very good places to hide during the risk-off episodes.”