Jpmorgan: Bond traders are too high on the Fed rate outlook, which is good for cyclical stocks

2022-07-19 0 By

According to, JPMorgan strategists led by Marko Kolanovic said global markets may be overpricing central bank monetary tightening cycles, increasing the attractiveness of cyclic-related stocks.With the Federal Reserve expected to raise interest rates in March for the first time in three years, two-year US Treasury yields have surged more than 80 basis points to their highest level since late 2019.That has increased competition for global capital and hurt the valuation of US Treasuries.And hit overvalued assets such as technology stocks and junk-rated bonds.”So far, we believe risk asset markets have largely adjusted to the shift in monetary policy,” jpmorgan strategists wrote in a note to clients.The short-term interest rate market may have moved too far ahead of what the central bank will ultimately achieve this year.”Interest rate outlook: close to 50 basis points in March, close to 100 basis points in July strategists believe the impact of these tightening measures from the developed world could be partially offset by the People’s Bank of China’s shift to easier monetary policy.In addition, Russia-Ukraine tensions are likely to force major central banks to tone down their hawkish positions, Mr. Moore said.”While the risk of conflict in Ukraine (UKR) is high, its impact on global equity markets should be limited and may prompt central banks to reassess their dovish stance,” kolanovic says.We expect risk asset markets to rebound as they digest these risks and sentiment improves, helped by systemic investor inflows and corporate buybacks.”Sovereign bonds have fallen this year as policymakers from the US to Europe tighten policy to control inflation.The STANDARD & Poor’s 500 index is down 9% from its record high in early January as traders have raised expectations of how much higher interest rates will be.Kolanovic and his colleagues are committed equity bulls who favor cheap, economically sensitive stocks.Last month, the team urged investors to buy beaten-up stocks like small-cap stocks, which have been sold off on fears of a recession due to a hawkish Fed policy mistake, which Masimo thinks is unlikely to happen.Strategists have been pushing back against hawkish market expectations for months.They said in October that the fear of higher interest rates — a rapid rotation of rate-sensitive growth stocks through a flattening of the Yield Curve — was misplaced.The number of rate hikes implied in the overnight index swap market has now risen to nearly seven this year.————— Market Matrix: Futures & Derivatives Trading Research Center – Find your best trading opportunities from our selected stream of top news sources like Bloomberg/Reuters /CNBC/WSJ!+++ Top investment banks macro/stock index/crude oil/gold research report and strategy!+++ Economic data/industry report in-depth interpretation!+++ Follow ++ View all resources