Wall Street has been experiencing a clear surge of pride for some time. Since bottoming out at the end of September, the US Dow Jones equity index has caused a sensation, with a spectacular rebound that has erased a good part of the massive losses accumulated over the first 9 months of 2022. It is currently a time for optimism, but For how much longer ? For JPMorgan, while a potential short-term spike in bond yields could support U.S. equities in the near future (in theory, higher yields on long-term bonds argue for a lower valuation on equities , and vice versa), investors continue to face significant risks as central banks continue to raise policy rates to levels not seen in decades.
The Chairman of the Fed even indicated recently that the United States key rate had a good chance of rising more sharply than initially expected and of staying high for longer than expected. According to the American bank, the Fed should take a break in its rate hike policy in February due to the expected progress on the inflation front (which could show signs of easing), but there are fears of new rounds screw afterwards.
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On the economic front, JPMorgan has become more wary lately. And in October, the bank reduced the allocation to risky assets (like stocks) in its model portfolios.
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However, while we can be wary of US equities, JPMorgan is more positive on equities from other major regions of the world, such as those of the United Kingdom and China, among others. Indeed, foreign equity markets have reached large levels of discount compared to stocks listed on Wall Street and are therefore likely to “outperform” (do better than) US stocks.
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British equities should, according to JPMorgan, benefit from their low cost compared to other major regions of the planet, from the advantages brought by the weakness of the pound Sterling to exporting companies in the United Kingdom and finally from a high dividend yield.
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As for Chinese stocks, which have halted their recent downward trend amid hopes of a less strict anti-Covid policy, they appear inexpensive and therefore attractive, according to JPMorgan. Especially since China is one of the few major countries where inflation is low and under pressure, which should allow more support measures from the monetary authorities of the Middle Kingdom.