Just teasing with the ‘capitulation bit”


But here’s what JPM are saying about equities (in summary)…

  • They see little fundamental cause for the drop in equities last week … “Over the past month, our modal views on earnings and the economy have if anything improved, while we have not seen enough reason to raise downside event risks. “
  • Their outlook for the global economy is on the up … “On the economy, after the pothole in the first half, it is comforting to see that we are both getting upside surprises on global activity” (with the expection of those austericists (my word, not JPM’s) in … well, guess where … “one piece of disappointing economic news is coming from the Euro Area, where recent releases have forced us to lower our Q2 growth tracking exercise from 1.0% to 0.5%, with contractions in both Italy and Germany. None of this seems so far due to tensions around the Ukraine. “)
  • “Geopolitical risks are constantly hitting the headlines, but the real big event risk likely in investors’ minds is how markets and the economy will handle the eventual normalization of US monetary policy, largely because it has been such a dominating factor for markets.
  • We are having trouble designating fear-of-the-Fed as the prime driver of the last correction”

They conclude:

  • Our technical strategists have been warning us over the past month that the equity market is due for a 5-10% correction. … Their view is that this correction is probably not over yet and has several percentage points to go, but will then set the equity market up for a continuation of the long-tem bull market … Our own take is to observe that four other markets – small caps, the dollar inversed, commodities and US High-yield – have been correcting similarly, and have over the past month stabilized, or started moving up … The great majority of investors we have been talking to over the past two weeks also see the market in technical terms now and are looking for re-entry points. The conclusion to us is that we are in a typical technical correction in risk markets, with modest fundamental support from a worsening situation in the Ukraine.