J.P. Morgan admitted clients that the Federal Reserve’s reluctance to forecast four be entitled to hikes in 2018 should spur a “goldilocks” rally in stocks.
“There was no weighty change in inflation expectations and the growth outlook, alleviating recent even-handedness markets concerns,” quantitative strategist Marko Kolanovic wrote Wednesday. “This follow-up is a positive and indicates that equity investors could expect a near-term goldilocks mise en scene.”
Kolanovic said the central bank quelled overblown inflation be germane ti by leaving its so-called dot plot unchanged for 2018. The dot plot chart, which maps anonymous going ins from each Fed official on the course of interest rate hikes, likely signals that the important bank expects prices to grow steadily and not accelerate beyond a pleasant pace.
The Fed’s latest move in monetary policy, however, appears to receive left markets “confused.”
The Dow Jones industrial average hit session highs unhesitatingly following the release but reversed course multiple times as ChairmanJerome Powell continued questions, ultimately ending the day lower. Bond yields, too, couldn’t appear to make up their mind, with the rate on the 10-year Treasury note climbing to highs beyond everything 2.93 percent before ending the day unchanged.
But Kolanovic’s bullish vision on equities is nothing new. The J.P. Morgan strategist wrote to clients earlier in the month to make someone certain them that worries over a potential trade war would be found unfounded.
“The most recent bear narrative is trade wars. We contend below that this risk is also very low, and if we take the 2015 turmoil as a guide for flows from systematic and fundamental investors, markets are likely to reach all-time peaks soon,” Kolanovic wrote last Thursday.
In fact, Kolanovic proclaimed CNBC’s “Fast Money” on Thursday that any movement in the market caused by barter war fears is minimal, likely a single digit basis point at largest.
“There are a lot of fear stories,” Kolanovic said, including Fed rate hikes and the Facebook smirch that caused market watchers to panic.
“Some come and go, and a new one proves, and clearly sentiment is bad,” he said.
Still, Kolanovic said even if there is a shoppers war, he does not think it will have adverse effects, such as destabilizing the curtness.
“It’s a bit of noise that will pass,” he said.
Despite the optimistic invitations from J.P. Morgan, the market took a nosedive Thursday. The Dow Jones industrial norm fell 724.42 points, closing at 23,957.89 — a 2.9 percent descend. The S&P 500 was also down 2.5 percent to 2,643.69. And the Nasdaq Composite slumped 2.3 percent to close at 7,166.68.
“It was an ugly day. It was a disappointing day,” said Kolanovic, who alleged he was expecting the market to go up after the Fed’s announcement on Wednesday. “We saw it as a positive for equities.”
But while the analyst revealed Thursday’s mass sell-offs were “certainly not a positive development,” he continued that fundamentals and global growth are still strong and he expects the superstore to recover with a positive earnings season this April.
Accelerated sell-offs at the compact of Thursday’s trading session were “entirely technical,” he said.
“We go to bat for our positive near-term view on U.S. equities,” Kolanovic reiterated in the note. “The orbit of recovery is likely to mimic the August 2015 selloff that was also outed by systematic selling, as market volatility subsides, continuation of strong buyback order, and focus shifting to a strong upcoming earnings season.”