Source: Golden Ten Data
Author: hearer
The Dow was on track for its longest winning streak since March as U.S. stocks continued to rise ahead of the holiday weekend. One of Wall Street’s most outspoken stock bulls, JPMorgan global market strategist Marco Kolanovic said in a new note to clients on Wednesday that U.S. stocks may have bottomed, at least for now.
To be sure, investors and markets are adjusting to a new era of higher interest rates amid aggressive rate hikes by the Federal Reserve. It is becoming increasingly clear that the stock market is no longer a monolith with all sectors moving in sync.
For investors, stock picking has become important. Value stocks are currently outperforming growth stocks, and some of the previously least popular sectors of the market, such as the energy sector, have outperformed recently.
In his report, Kolanovic told clients not to think about “when will I get in,” but rather “which ones will I get in.” At present, some segments of the US stock market, such as energy sector, small-cap stocks, high-risk stocks, cyclical stocks and emerging market sectors, contain huge opportunities.
Kolanovich sees the potential for a broad-based rally in stocks driven by “corporate puts.”
Until recently, investors attributed the persistence of stock valuations to “Fed put options,” the idea that the Fed would help “repurchase” the market if the market fell to troubling levels, as if the Fed sold the put options Same.
Kolanovich said company puts are still very active. While the IPO (initial public offering) market has dried up, JPMorgan noted that S&P 500 companies have announced $429 billion in buybacks since the start of 2022, faster than in 2019 and 2021 . Stock buybacks are motivated by strong cash flow and healthy profit margins, and investors can expect buybacks to continue unless economic conditions deteriorate significantly, Kolanovic said.
In the first quarter, U.S. stock repurchases increased 45% year-on-year and 3% sequentially, led by technology ($62 billion in repurchases), finance ($49 billion), and healthcare ($39 billion) . It is worth noting that due to the rise in global oil prices, the repurchase value of the energy sector has increased significantly to US$9.5 billion, while this value was only about US$500 million in the first quarter of 2021. While JPMorgan expects 15% of companies to remain in shutdown, the trend of share buybacks should continue in the coming weeks as more companies come out of the shutdown after reporting quarterly results.
Of course, it’s not just companies buying stocks. More recently, another team of analysts at JPMorgan projected a “rebalancing” of flows from mutual funds, pension funds and foreign sovereign wealth funds to push stocks up 1%-3% next week. Combine that with the worst investor sentiment since the Great Financial Crisis in March 2009, and strong corporate share buybacks, and JPMorgan is confident that stocks are close, if not yet, at a bottom.
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