Hard-line comments about interest rates by central banks around the world have some investors worried that economies and financial markets are heading for deflation.
But JPMorgan strategists, led by Marko Kolanovic, aren’t too pessimistic.
“We maintain that economic data and investor position are more important factors for the performance of risky assets than the central bank’s rhetoric,” they wrote in a commentary.
“The data appears increasingly supportive of a soft landing (rather than a global recession), given moderate inflation and wage pressures, rebounding growth indicators, and stabilizing consumer confidence.”
US consumer prices rose 8.3% in the 12 months to August, slowing from an 8.5% increase in the 12 months through July.
The US government reported on September 15 that retail sales rose 0.3% in August from July.
stock background wind
“Our expectation is that the global economy will stay out of recession, together with increased fiscal stimulus (eg, in China, energy subsidies in Europe) and still very low investor sentiment and sentiment, should continue to provide tailwinds to risky assets,” he said. Strategists.
They said it would bypass the “more hawkish central bank rhetoric of late”. As a result, “we maintain a pro-risk stance in our model portfolio this month.”
Analysts said that recent geopolitical developments, such as deteriorating prospects for an Iranian nuclear deal and the progression of the Group of Seven industrialized nations toward setting a ceiling for Russian oil prices, “should be optimistic about energy.”
But prices have not yet responded. Oil prices in the US have fallen by 28% in the past three months.
“We advocate a dip in energy buying and maintaining our over-rated ratings in commodities and commodity sensitive assets, given the super-cycle thesis, and as a hedge for inflation and geopolitical risks,” the strategists said.
They are also generally overweight stocks. Among the areas of stocks they love are cyclical, small markets and emerging markets, including China. They are not interested in expensive defensive stocks.
Dalio’s opinion: Less enthusiastic
Meanwhile, Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund manager, wasn’t as enthusiastic as JPMorgan’s strategists.
When looking at inflation, Dalio wrote in a LinkedIn comment: “When you look at inflation,” my guess is that it will be around 4.5% to 5% over the long term, excluding shocks (eg, worsening economic wars in Europe and Asia, or more droughts and floods). .
Dalio forecasts a range of 4.5% to 6% for long- and short-term nominal bond yields in the coming years. Given the federal government’s heavy debt burden, he believes yields should rise to the higher end of that range.
An increase in yield would mean a “significant reduction in private credit that would reduce spending,” Dalio said. “This will lead to lower private sector credit growth, which will lead to lower private sector spending, and thus the economy with it.”
Dalio predicted that a higher rate would cause stock prices to fall by 20%. This will also affect the economy, he said.