JPMorgan’s Marko Kolanovic Says It’s Time to Buy the Dip in Stocks

(Bloomberg) -- JPMorgan Chase & Co. strategists led by Marko Kolanovic say it’s time to start buying the dip in the U.S. stock market. 

“The pullback in risk assets in reaction to the Fed minutes is arguably overdone,” Kolanovic wrote in a note to clients Monday. “Policy tightening is likely to be gradual and at a pace that risk assets should be able to handle, and is occurring in an environment of strong cyclical recovery.” 

Stocks have tumbled, sending the S&P 500 to the worst start of a year since 2016. Richly valued technology shares have borne the brunt of the selling as traders ratcheted up their expectations for rate hikes from the Federal Reserve. 

While the prospect of higher interest rates creates pressure on expensive stocks, it won’t derail the bull market as the economy keeps expanding, Kolanovic says. In fact, he views the wave of the omicron variant of the coronavirus as a likely end to the pandemic, a development that would provide a boost to the economy in the second quarter.  

“We stay positive on equities and expect omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll,” he wrote.  

He continues to favor value stocks, mostly economically sensitive companies that have been long ignored and now are trading at lower multiples relative to earnings or book value. The value trade is off to a stellar outperformance this year, reviving hopes for a more sustained rotation out of growth stocks. 

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