© Reuters. JPMorgan’s Kolanovic says risk-reward unfavorable for equities trading at all-time highs
JPMorgan analysts said in a note Tuesday that the growth divergence between the US and Europe is supportive of a broad US vs. Euro trading theme, but the risk-reward is unfavorable for equities trading at all-time highs.
“Divergent trends between firming US growth and a weak growth picture in Europe are supportive of a broad US vs. Euro trading theme, in our view,” the analysts said.
“We play this theme through OWs in US vs. Euro equities, OW in US vs. Euro credit, OW Bunds vs. USTs and OW the dollar vs. the Euro,” they added.
Meanwhile, analysts stated that the market is priced for perfection, equity market internals are unhealthy given extreme concentration, investor positioning is elevated, valuations are expensive, the Fed is pushing back on market dovishness, and there are underappreciated inflation and geopolitical risks.
As a result, they believe “the risk-reward remains unfavorable for equities that are trading at all-time highs and credit spreads at near record tights.”
For JPMorgan, the long-duration trade is to have a tactical respite, according to the analysts.