JPMorgan Market Update - FJElite
Was yesterday the bottom? We think you buy the dip. (i) It feels like we may have seen the end of the Momentum unwind, with typical corrections averaging a 10-15% decline, and currently Momentum (JPMPURE Index) seeing about -13% peak-to-trough decline. This point to a tactical rebound but this may not prove to be an all-clear for Semis / Memory longer-term, despite an exceptional fundamental story, given the lofty expectations surrounding earnings, e.g., Samsung, (ii) Our +Cyclicals vs. -Defensives basket (JPPCYDE Index) is down -18% from its multi-year high set on June 22. (iii) Positioning was already below neutral, and while not flashing a Buy Signal, we are closer after yesterday's price action, (iv) There is some trepidation surrounding earnings as meaningful index catalyst, but the macro / micro backdrop has a consensus positive outlook though some clients are waiting for additional catalysts, specifically CPI and Retail Sales.
Our tactical view is Bullish. Where could we be wrong? AI and Oil. The AI theme could see another step lower though the SPX impact would be contained if this is a reversal of popular pairs trades (+Semis vs. - Software or +Semis vs. -Mag7) or if Momentum is truly washed out. Regarding oil, yesterday s moves flag that geopolitical risk is not yet behind us with US / Iran moves pushing WTI up as much as $4/bbl (-6%) before closing the session up less than $2/bbl (+2.8%). This oil move pushed USD and bond yields higher, resulting in Equities coming for sale. The AI story continues to impress fundamentally and with US / Iran, history suggests that it is profitable to buy any headline-induced declines.