Despite a recent dip in U.S. equities, JPMorgan analysts anticipate that the S&P 500’s next significant move will be upward.
“The SPX fell 2.6% last week, trimming the MTD gain to 4.2% and pushing the YTD return back into negative territory, -1.3%,” the firm noted. However, they view this decline as a temporary correction rather than a sign of a lasting reversal.
“We had flagged pullback risk and believe that we experienced that last week,” JPMorgan said in a recent note to clients.
While the index remains just under 6% off its record high, the bank maintains a bullish short-term outlook, stating that the “next 300 points” are more likely to be to the upside.
This optimistic view hinges on three key factors: “(i) stable macro data; (ii) positive earnings; and (iii) a further de-escalation of the trade war.”
Market jitters last week were partly fueled by growing concerns over the U.S. fiscal outlook. Although the 10-year Treasury yield rose just 3.4 basis points over the week, it fluctuated within a 20 basis point range as volatility picked up. “While the 10Y yield only rose 3.4bps on the week, it traded in a 20bp range as the MOVE index increased 4.4%,“ the analysts noted.
Elsewhere, global markets outshined U.S. stocks during the same period, aided by further softness in the dollar. The DXY index declined another 2%, adding to recent weakness.
JPMorgan also pointed to Nvidia’s (NASDAQ:NVDA) upcoming earnings report as a potential market mover, especially given the mixed signals over the weekend regarding U.S.-EU trade tensions.