How Does JPMorgan View the S&P 500 and Global Markets in 2022
04 Dezember 2022 - 11:08PM
Finscreener.org
Despite the underlying volatility
surrounding the stock market, equity indices moved higher in the
last week that ended on December 2, 2022. A stronger-than-expected
labor market again raised concerns over the possibility of further
quantitative tightening measures by the Federal Reserve.
While the Dow Jones was
rangebound, the
S&P 500 and
the Nasdaq Composite Index rose by 1.1% and 2.1%, respectively, last week.
However, the 10-year yield touched a two-month low of 3.5% last
Thursday as the yield curve inversion deepened. A leading indicator
of an economic recession, the yield curve is inverted by 80 basis
points which means the two-year yield is 80 basis points higher
than the 10-year treasury yield.
Stock prices of energy companies
were under pressure in the first half of the last week as West
Texas Intermediate (WTI) prices fell to a year-to-date low of
$73.50 but closed at $80 per barrel.
Data on several macroeconomic
indicators, including the purchasing managing index, the producer
price index, and the consumer sentiment index, will be published in
the coming days, driving investor sentiment in the process.
Companies including Costco (NASDAQ:
COST), Broadcom (NASDAQ: AVGO), Oracle (NYSE:
ORCL),
and Lululemon
Athletica (NASDAQ:
LULU) will be publishing quarterly results too this
week.
Recently, leading investment
bank JPMorgan (NYSE:
JPM) released its outlook for 2023 and key trends and
drivers investors should watch out for. Let’s see what the
financial giant expects to transpire in the global markets in the
next 12 months.
Housing activity to remain under pressure
Mortgage rates and housing demand
are closely related. A higher interest rate environment will result
in lower demand for housing and weaker numbers for verticals such
as construction, furniture, and durables.
However, just 5% of U.S.
mortgages are on an adjustable basis, compared to 20% in 2007. As
30-year mortgage rates stood at 2.8% at the depths of the COVID-19
pandemic, refinancing activity gained pace across the board. So,
disposable income should not be impacted by recent
hikes.
Additionally, limited stock of
housing for sale should prevent large house price declines in
2023.
What next for Europe?
Investors in the European markets
might be closely watching the demand and supply of energy in the
continent. Russia, which previously supplied 40% of Europe’s gas,
stopped a bulk of these supplies in recent months.
At this point, Europe might avert
an energy crisis as they undertook energy rationing measures
resulting in full storage levels. But a colder winter might alter
the scenario for the worse.
China and supply chain
While COVID-19-related
restrictions have been withdrawn in most regions globally, China is
still imposing lockdowns in several provinces. The manufacturing
hub of the world, China’s zero-COVID-19 policy is unlikely to ease
supply chain disruptions in the near term.
Inflation and interest rates
In case production activity gains
momentum in China, inflation might ease in 2023. Slowing economic
activity in the U.S. and lower-than-expected crude oil prices will
also act as tailwinds for lower inflation in the near term. But the
labor market needs to cool off for the central bank to even
consider lowering interest rates.
Banks are well capitalized
The well-capitalized balance
sheet of banks should prevent a credit crunch. Tighter regulations
following the financial crisis of 2008 have ensured commercial
banks are much better positioned to endure an economic
downturn.
A modest recession
Due to the above-mentioned
factors, developed economies are likely to experience a mild
recession in 2023. However, equity valuations in emerging markets
are looking quite attractive at current levels.
Bonds are attractive
During the elongated equity bull
market in the past decade, interest rates were
extremely unattractive,
as 90% of global government bond rates yielded below 1%. Now, the
reset in yields in 2022 has boosted the diversification potential
of bonds.
JPMorgan emphasized, “The reset
in fixed income this year has been brutal, but it was necessary.
After the pain of 2022, the ability for investors to build
diversified portfolios is now the strongest in over a decade. Fixed
income deserves its place in the multi-asset toolkit once
again.”
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