Don’t expect the market’s early 2023 momentum to last, JPMorgan Chase warned. The S & P 500 is up more than 6% since the start of the year, recovering some of the lost ground from 2022. Since an Oct. 12 low, the broader market index has rallied 14%. Further gains will be harder to come by as warning signs continue to mount, JPMorgan strategist Mislav Matejka said in a Monday note. The recent stock rebound “is drawing investors in. Many, who were convinced last summer that any rally should be seen as just a bear-market rally, are now nurturing increasing optimism that recession can be avoided altogether,” he said. But, “we do not expect that there will be a fundamental confirmation for the next leg higher, and see rally fading as we move through this quarter, with Q1 possibly marking the high for the year,” he added. .SPX YTD mountain SPX in 2023 Matejka note that a heavily inverted yield curve, tight money supply in the U.S. and Europe and tighter lending standards will keep a lid on stocks going forward. The strategist also noted that, historically, “equities do not typically bottom before the Fed is advanced with cutting, and we never saw a low before the Fed has even stopped hiking.” The Fed hiked rates at its Jan. 31-Feb. 1 meeting by 25 basis points, down from 50 basis points at its December meeting. However, the central bank noted it expects “ongoing” rate increases. A basis point equals 0.01 percentage point. “It might be premature to believe that recession is off the table now, when Fed will have done 500bp+ of tightening in a year, and the impact of monetary policy tended to be felt with a lag on the real economy, of as much as 1-2 years,” Matejka said. Bank of America is also cautious on stocks going forward, with strategist Savita Subramanian noting: “We think now is not a time to buy the (crowded) market index.” Subramanian upgraded materials to overweight from underweight and communication services to market weight from underweight. “As resources and eyeballs allocated to active fundamental investing have dwindled, mean-reversion opportunities have surged. We recommend being invested in equities but selectively,” Subramanian said. — CNBC’s Michael Bloom contributed reporting.
