JPMorgan strategist Mislav Matejka cautioned clients on Monday that equities may experience additional short-term weakness before the market finds firmer footing, summarising the situation with the observation that "things might need to get worse before they can get better."
In a client note, Matejka reiterated the bank's view that the recent bout of derisking - driven by geopolitical escalation - is likely to be relatively short-lived and should ultimately create buying opportunities. He framed the expected duration as "days/weeks, rather than months/quarters," and said the escalation "might have a relatively limited lifespan, so that it will ultimately be an opportunity to add, post the initial bout of derisking."
JPMorgan's research team reports that position-squaring is already in progress and that oversold areas are beginning to appear across the market. That said, the bank warned of immediate risks emanating from energy and fixed-income markets. Matejka noted that the developments could spur additional oil price spikes in the very short term, while also characterising the oil move to date as "far from extreme" and smaller than the rally observed during the Russia-Ukraine conflict.
The note also highlighted a rapid rise in U.S. gasoline prices, which it said climbed roughly 10% to 15% over the past week, and a shift in public sentiment. According to the bank, U.S. opinion "is staying out of favour over this recent escalation," including sentiment "on the strong right."
Given these cross-currents, JPMorgan said it would not be surprised if equities reached a near-term low "this or next week." The bank suggested that investors may consider adding exposure to Industrials, Semiconductors, and Consumer Discretionary names, alongside allocations to emerging markets and the eurozone over the next one to two weeks.
JPMorgan also pointed to sharply oversold hyperscalers and AI-oriented stocks, noting that the cohort of AI losers could experience "some better trading for a while." Still, the bank urged investors to remain selective beyond any initial rebound, rather than assuming broad participation across the group.
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