The Worst Might Be Over for Stocks, JPM Says

The stock market, after a painful pratfall that plunged it into the bear zone, might just have seen the worst. That’s the somewhat hedged upbeat assessment of JPMorgan Chase strategists. But not everyone on Wall Street is as optimistic.

Conditions that the bank had set for the market’s stabilizing and renewal—“a significant slowdown in COVID infection rates, recession-like pricing across financial markets, a reversal in investor positioning and extraordinary fiscal stimulus—have mostly been met,” JPM strategists led by John Normand wrote in a research note. Most so-called risk assets (typically stocks) have seen their lows and should move higher in the second quarter, the note concluded.

Norman was sure to insert a significant caveat, certainly. “Risky markets should remain volatile as long as infection rates create uncertainty about the depth and duration of the COVID recession, but enough has changed fundamentally and technically to justify adding risk selectively,” Normand wrote. “Most risky markets have probably made their lows for this recession, except perhaps oil and some EM currencies beset by debt-sustainability issues.”

JPM is not alone in such a view. “Life will go on, and it’s a matter of when not if,” observed Epoch Investment Partners’ co-CIO, Bill Booth, in an interview. Social distancing and medical breakthroughs should ultimately reassure the market on the coronavirus, he predicted.

In addition to the robust fiscal support that Washington is providing, he said, the central banks’ monetary moves are a big help. “They’re keeping the plumbing of the financial system and the credit markets working,” he added.

Bolstering the bullish view is a Citigroup survey of institutional clients, which found a vast majority were relatively upbeat on stocks. Some 70% of the bank’s institutional clients believe a 20% climb is more likely than another 20% plunge. Since the S&P 500’s high point Feb. 20, the index has descended 21.7%.

“Intriguingly, despite recession fears, 80% want to commit new cash to equities, but greater than 85% see large caps as outperforming and 65%+ perceive growth stocks to outpace value names,” the Citi missive read.

Not everyone sees the market bottom as necessarily in place. Look for another slide in April, DoubleLine Capital CEO Jeffrey Gundlach admonished in a firm webinar. Due to more upcoming bad economic news, he said, “I think we’re going to get something that resembles that panicky feeling again during the month of April.”

Goldman Sachs Group’s David Kostin reiterated in a note that he too expects the market to turn lower in coming weeks. He had a checklist for a solid rally that resembles Normand’s but questioned whether that would be sufficient to push up stocks.

Among the other rally skeptics is billionaire investor Steven A. Cohen, who in a message to his staff at his new vehicle, Point72 Asset Management, contended that the collapse was so harsh that any turnaround would be difficult to keep going.

”Markets don’t come back in a straight line; after an earthquake there are tremors,” Cohen wrote, according to Reuters.

Buying stocks now is too early, declared Gavekal Research’s Anatole Kaletsky in a note. That’s because big drops may pause, yet they are seldom the solo act, he reasoned. Bear markets, he wrote, almost never end with one big selloff without retesting the bottom.