Strategists at JPMorgan Chase & Co. believe recession concerns involving small caps are unlikely to come true, as buyback activity is expected to pick up moving forward.
- Strategists led by Marko Kolanovic believe the sell-off in small caps is overdone, as a recession is already priced in by the market. The team reiterated its buy call, specifically in cyclicals and small caps.
- Kolanovic said fears of a policy mistake by the Federal Reserve are misplaced, with expectations of seven interest rate hikes through March 2023. The above-trend economic growth and corporate earnings are seen to offset any hit from the valuation front.
- Kolanovic said recession fears are “understandable” and have been exacerbated by technical factors which can change quickly. He believes systematic outflows are likely to reverse and buyback activity to pick up.
Stocks opened the week on a strong note after expectations of a Fed tightening dragged equity benchmarks to historic lows.