JP Morgan strategists are betting on nothing. Well, not literally, but they are betting on no surprises in the coming months. As long as no shocking news events hit the market in a negative fashion they continue to think that fund flows will support the market as investors rotate out of cash into bonds and equities:
“We estimate the world remains long cash and bonds. Cash is likely the most expensive asset in the world. And fixed income is now near all-time lows. Hence, we expect to see further flows from cash and low-yielding bonds into credit and equities.”
They still see investors being too heavily invested in cash and underweight equities. They think this move from cash to bonds and equities might be half way over:
They still see the economy rebounding and a strong 2nd half GDP at 3.7%:
“The message from economic data is that a global recovery is taking hold and is spreading. Many investors still doubt it is sustainable. We believe it is, at least through next year, and find it too early to speculate about what happens afterwards.”
They remain overweight equities with particular interest in tech, energy and banks. They are adding Russia to overweight as oil surges higher:
“remain long equities and favor Energy, Technology, and Banks across sectors. The former two tend to outperform in the six- to 12-month window following the market bottom. Banks are benefiting from asset reflation and a stabilization in housing prices. This and the prospect of dividend increases next year are supportive of a bullish view for banks. Within EM, we upgrade Russia to an overweight.”
In terms of Forex they see a potential bottom in the dollar for 2009 and would unwind shorts. This meshes with their bearish view on oil. They believe the recent move up in oil is unsustainable. Despite these equity headwinds, they remain bullish into year-end.