The slight downturn in the major indices hasn’t deterred JP Morgan and their wildly bullish stance. They still like the reflation trade, short duration bonds, and a U.S. dollar short. Personally, I believe the dollar has seen its 2009 low, but only time will tell. It’s hard to turn full blown bearish on equities heading into a new earnings season that is likely to be “better than expected”. JP Morgan’s full strategy update:
- Portfolio strategy: Stay in recovery and asset reflation trades.
- Fixed Income: Stay short duration.
- Equities: Inflows into equity funds should start accelerating in coming months as bond yields are at historic lows.
- Credit: Stay overweight super senior AAA CMBS and consumer and mortgage-related ABS, as investors reach further for yield.
- FX: Stay short USD on FX reserve diversification. Add to sterling shorts.
One of the primary drivers of their bullishness is the global overweight position in cash and bonds. JP Morgan believes investors will be forced into more risky allocations as cash and bonds prove to be insufficient returns on investment:
The recovery and asset reflation trade continue to work in tandem to push up asset prices across the world. Equities hit new highs this week, while credit spreads and the dollar fell to new lows. Bonds are in a range despite massive supply. We stay with both of these trades, keeping us long equities and credit, long carry, short the dollar, and positioning for range trading on bonds and commodities. Neither positions nor value are as yet threatening. 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.
The banks are bullish and appear to be controlling much of the market action. Ignore them at your own cost….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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