Even JPMorgan’s bullish strategist Kolanovic says the markets are moving forward. Here’s what he and a Goldman strategist say they do now.

A not-so-terrible day is brewing as the clock ticks towards Wednesday’s retail sales report.

But while some investors cling to hopes that last week’s stock market rush can continue, fueled by that weaker inflation report, Wall Street remains wary and new warnings from two big banks that make up ours. call of the day.

Late Monday, Goldman Sachs warned clients that the relief rally in bonds and risky assets was “probably overstated”. Almost simultaneously, one of Wall Street’s hottest bulls, JPMorgan’s Marco Kolanovic, cut his equity risk exposure for the second time in two months, and also cited the big market rebound last week.

The first is Kolanovic, who has been a well-known bull for much of this year.

With a “federal funds rate close to 5%, a recession will be difficult to avoid unless the Fed rotates more significantly. Therefore, our optimism is mitigated by the still high recession risks and the risk that data from the ‘October CPIs turn out to be anomalous and / or fail to reduce central bankers’ enthusiasm to push policy into more restrictive territory,’ Kolanovic said.

Taking advantage of last week’s rally, JPMorgan expects to reduce its overweight equity “moderately”. Other moves? Get out of a long dollar bias by adding exposure to corporate bonds with a focus on high yields; reverse a previous overweight in US high-grade credit versus Europe, due to the latter’s higher risk premium; and move to neutral from an underweight to emerging market sovereign debt.

Kolanovic says they will also remain overweight commodities, tied to easing COVID restrictions in China and hedging on both inflation and geopolitical risk.

The strategist called the summer rally for equities and as early as September stated that equities could rely on “robust earnings, low investor positioning and well-anchored long-term inflation expectations” even if the Fed were aggressive. He cut his equity exposure for the first time in October, proving uncomfortable with the Fed’s tough tone and geopolitics.

As for Goldman Sachs, which was much more cautious this fall, a team led by strategist Cecilia Mariotti noted that last week’s stock run focused on “some of the shortest and longest-lasting pockets in the market.” . That is, Nasdaq and Goldman’s unprofitable tech basket, which were also among the worst performers since the start of the year, he said.

Consistent with a negative correlation observed with bond yields this year, the recent rally in equities “likely reflects market hopes for a true inflation and hawkish spike, which would tend to support risky assets as long as growth remains good.” , he has declared.

And while strong bear market gains aren’t unusual, the bank believes “the bearish positioning has exacerbated some of the moves.” Indeed, a temporary lull in some sentiment indicators, such as polls coming out of bearish levels, can drive large stock reversals, he said.

This is where consumers themselves become wary, Mariotti said, citing the recent University of Michigan Consumer Sentiment survey.

The strategist said investors should understand that the risks of an “upside cycle extension” remain and if markets see a major easing in financial conditions, this could only force central banks to reiterate a hawkish stance, especially in the case of resilient growth.

Goldman’s advice? Avoid those tech stocks that continue to look expensive and take a look at China, which is supported by the reopening of hopes.

Laws: The Dow is outperforming, which could be a sign that the latest stock market rally will die down

Markets

MarketWatch

ES00 Stock Futures

YM00

NQ00
they are higher than the dollar’s DXY
The post-CPI decline continues, with Treasury BX yields: TMUBMUSD10Y

TU00
even softer. The cooling of tensions between China and the US is also helping to lift the mood. CL oil prices
they are a little lower. The International Energy Agency has forecast increased demand for this year and next. Elsewhere, GC00 gold
is active and bitcoin BTCUSD
firmer at $ 16,802.

The buzz

Home Depot HD
stocks are down after the DIY retailer reported higher-than-expected earnings and left his outlook unchanged. Walmart WMT
the results are yet to come.

Chinese economic activity showed signs of slowing in October, but stronger online sales lifted Alibaba BABA
and other tech names in Hong Kong, with their ADR prices rising in pre-market trading.

Empire State Producer Prices and Manufacturing Index are expected at 8:30 am, while the Fed. Governor Lisa Cook and the Philadelphia Fed Chairman. Patrick Harker will make morning appearances, with Fed Vice President Michael Barr testifying to the Senate Banking Committee on Regulation. Third quarter household and mortgage debts expire at 11:00

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The graph

Expectations for a recession are the highest since April 2020, around the height of the COVID pandemic. This is according to Bank of America’s Global Fund Manager survey, released on Tuesday, which shows that 77% net of managers see economic withdrawal will come in the next year.

BofA

The tickers

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NIO

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DWAC

Acquisition of the digital world

APE

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