After a disappointing start to 2022, equities have shown resilience in the second half.
Since the end of June, the S&P 500 has risen nearly 10%. And according to JPMorgan, there is even more upside potential.
The Wall Street gorilla recently reiterated its year-end price target of 4,800 for the S&P 500. With the benchmark index currently standing at around 4,100, JPMorgan’s target implies a potential rate of gain of 16%.
The company notes how lower market volatility can lead to influx of systematic investors.
“In addition to corporate buybacks, these strategies could generate steady inflows of several billion a day in stocks over the next 2-3 months,” Marko Kolanovic, chief global markets strategist at JPMorgan, wrote in a note to investors. “Trend-following strategies that have largely been short in stocks this year are covering shorts.”
Let’s take a closer look at this call – and where the market guru sees opportunities.
Do not miss it
The $100 Billion Catalyst
Technical indicators can play a crucial role in the potential turnaround.
Kolanovic points out that the S&P 500 is “about to breach key momentum signals” such as the 200-day moving average.
On stock charts, the 200-day moving average is shown as a line. Traders can use this line to determine whether the trend is up or down and identify potential areas of support or resistance.
The S&P 500 has been trading largely below the 200-day moving average in recent months. Kolanovic suggests that if the index can get above this 200-day moving average, it could lead to inflows “on the order of ~$100 billion.”
We may have to wait a little longer for that. The S&P 500 fell about 1.2% in the past week.
Will the Fed run?
To contain rising inflation, the Fed is aggressively raising interest rates, which has cast a huge shadow over the stock market.
But Kolanovic doesn’t believe the central bank’s aggressive stance would last.
“[W]We again disagree, claiming that inflation will subside on its own as the distortions fade and that the Fed overreacted with a 75 basis point hike,” he writes. “This Fed ‘overreaction’ and the subsequent but largely unrelated decline in inflation is likely to result in a Fed pivot, which is positive for cyclical assets.”
While JPMorgan has a bullish price target for the S&P 500, it doesn’t suggest simply buying the benchmark index as a whole.
Kolanovic also warns not to hunt for large-cap tech stocks or recession-proof stocks that are already “trading near all-time highs.”
The opportunities he sees are based on appreciation.
“There are market segments like energy trading with mid-single digit P/Es (below recession multiples), and even some broad markets like the S&P 600 small cap index that trades at recession-level multiples,” he writes.
Investors can use ETFs to gain exposure to these segments. For example, the Energy Select Sector SPDR Fund (XLE) provides investors with easy access to the energy sector of the S&P 500. Meanwhile, investors can leverage funds such as the Vanguard S&P Small-Cap 600 ETF (VIOO) and the SPDR Portfolio S&P 600 Small Cap ETF ( SPSM) to track the small-cap index.
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This article provides information only and should not be construed as advice. It comes without any kind of warranty.