With markets deep in the red, strong oil and dollar sales due to the uncertainties of the Omicron variant, JP Morgan strategists are looking to the glass as half full. And they expect post-Covid normalization to continue to take hold globally in 2022, while updating forecasts to a more nuanced view on reopening.
Indeed, analysts of the US investment bank for now predict that the S&P 500 will rise from the current level of 4,655 to 5,050 at the end of next year, which would be an increase of about 8.5%. The expectations on annual earnings per share (eps) are more interesting, in the order of an increase of 14%. The strategists led by Dubravko Lakos-Bujas and Mislav Matejka continue to see the market up next year, albeit in a more moderate way and above all they expect better than expected earnings growth thanks to a gradual normalization on the supply side. which has experienced significant bottlenecks this year.
And, despite the government’s crackdown still underway in China on various sectors, from real estate to tech to crypto, private teaching to gambling, JP Morgan expects an improvement in the scenario for 2022. which should involve all emerging markets and the normalization of consumer spending habits.
What, on the other hand, could be the most important risks for 2022? According to the American strategists, a policy of the American Central Bank is too hawkish, especially if this happens while China still delays in the reopening of activities and borders (now the Covid-zero policy is in force, which presupposes many restrictions on movements and above all a great control over the arrival of foreigners), unresolved problems in the supply chain and a continuing shortage of manpower.
From an asset allocation perspective, analysts expect European equities to outperform the US, Chinese equities to outperform emerging markets, and emerging markets outperform developed ones. As for the type of securities to hold in the portfolio, the advice is to maintain a pro-cyclical bias, especially after the last sales sessions, with a preference for sectors sensitive to reflation such as energy and financials over basic necessities and public services. utility. Furthermore, consumer services would be preferred over consumer goods and healthcare over other defensive sectors and small caps over larger capitalization companies.
And the technological field? The latter should also continue to “provide solid fundamentals”, although it risks coming under pressure from higher rates. But this will depend on the Fed. And it is no coincidence that Federal Reserve Chairman Jerome Powell said in the past few hours that the Omicron variant of Covid-19 and a recent increase in coronavirus cases pose a threat to the US economy. and confuse an already uncertain inflation outlook.
“The recent rise in infections and the emergence of the Omicron variant pose downside risks to employment and economic activity and greater uncertainty for inflation,” Powell explained in remarks he intends to deliver to the Senate today. “Greater concern about the virus could reduce people’s willingness to work face-to-face, which will slow progress in the labor market and intensify supply chain disruptions,” Powell added. And maybe there won’t be a too hawkish Fed. (All rights reserved)