JPMorgan’s Kolanovic Says Market Still Misjudges Reflation Trade
(Bloomberg) -- The recent market jitters over stagflation are “misplaced” and the shift to bargain stocks and economically sensitive companies should continue, according to JPMorgan Chase & Co. strategists led by Marko Kolanovic.
The economic expansion is likely to stay above trend levels as major central banks appear to prioritize sustaining the recovery over taming inflation, they wrote in a note to clients. Calling last week’s retrenchment in bond yields “technical and temporary,” they said Treasury rates will likely resume their advance -- buttressing a “continued and significant” rotation among assets into the end of 2021.
“The shift in central bank policies towards tightening has only begun and has plenty of room in our mind as inflation depresses real rates,” Kolanovic and his colleagues wrote. That’s making central banks look “even more behind the curve,” they added. “In all, the market does not price our view that the moderation in inflation will be limited and underlying inflation will materially step up.”
Equities have climbed this month, with the S&P 500 rebounding from the worst monthly drop since March 2020, as corporate earnings helped offset concerns over everything from the Federal Reserve’s withdrawal of emergency stimulus to commodity inflation. Over the stretch, however, growth stocks outperformed their value counterparts.
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