JPMorgan quantitative guru says investors are still sleeping on inflation risk – and reiterates call to buy stocks linked to economic recovery before possible shock

  • Inflation is an underestimated risk, a team led by Marko Kolanovic of JPMorgan said on Monday.
  • Strategists reiterated their call to remain overweighted on cyclical assets that depend on the economic recovery.
  • Despite the inflation risks, Kolanovic has a bullish outlook on the stock market for the remainder of the year.
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Investors still underestimate the risk of inflation, said JPMorgan’s chief global markets strategist.

In a Monday note, a team led by Marko Kolanovic reiterated its recommendation to remain overweighted in assets linked to the economic recovery, and noted that inflationary surprises are expected to persist through the second half of 2021.

“In our opinion, the risks of inflation are currently underestimated by economists and the markets,” strategists said. “At the asset class level, the inflation theme not only favors an overweighting in commodities and equities, but also an underweighting in credit.”

They added that value stocks and value-driven sectors should continue to outperform, while tech stocks could lag if rates rise.

Rising inflation has been a central concern on Wall Street as the economy recovers from the pandemic. Last week, BlackRock’s Gargi Chaudhuri said that while she doesn’t expect runaway 1970s inflation, higher inflation is an undervalued risk.

Despite the inflation risks, Kolanovic’s team has a bullish outlook on the stock market for the remainder of the year.

Strategists cited the ongoing recovery from the pandemic, the accommodating monetary position of global central banks and the still below-average positioning in risky asset classes such as equities and commodities as reasons for their pro vision. risk.

“The next upside is probably upon us, following sideways movement in markets and bond yields over the past two months, with cyclicals expected to outperform defensives even better,” they said. “Despite the peak in some activity indicators, the market should feel comfortable that growth will remain well above the 2H trend, supported by both consumption and investment. At the regional level, our strategists expect the eurozone, Japan and emerging markets to outperform, while they are underweight US and UK equities. ”

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