JPMorgan Analysts Warn of Unfavorable Risk-Reward for Equities Trading at All-Time Highs
JPMorgan Analysts Evaluate US vs. Euro Trading Theme
JPMorgan analysts recently noted that the growth disparity between the US and Europe supports a broad US vs. Euro trading theme. While they acknowledge the supportive nature of this trend, the risk-reward is deemed unfavorable for equities trading at all-time highs.
US vs. Euro Trading Theme
The analysts emphasized the diverging trends between strengthening US growth and a weakened growth outlook in Europe, marking the foundation of the broad US vs. Euro trading theme. This approach encompasses overweights in US vs. Euro equities, US vs. Euro credit, Bunds vs. USTs, and the dollar vs. the Euro.
Market Evaluation and Risk Assessment
Analysts highlighted several concerns regarding the current market landscape. They mentioned that the market seems to be priced for perfection, displaying unhealthy equity market internals due to extreme concentration. Additionally, concerns were raised about elevated investor positioning, expensive valuations, the Fed’s resistance to market dovishness, and underappreciated inflation and geopolitical risks.
Unfavorable Risk-Reward for Equities
Resultantly, the analysts firmly believe that the risk-reward ratio remains unfavorable for equities trading at all-time highs, with credit spreads nearing record tights. They foresee a tactical respite for the long-duration trade in light of these circumstances.
