JPMorgan strategist Mislav Matejka urged investors to look past near-term geopolitical turbulence and treat market weakness as a buying opportunity, saying the chance of a sustained stagflationary shock has been overstated.
Matejka noted that, on a headline basis, the MSCI World index has completed what JPMorgan termed a "V-shaped rebound," but he warned that the apparent strength masks underlying fragility.
"Current market breadth is very narrow and nearly all consumer plays are lingering at lows," the note said, adding that "equities complacency is not all that clear cut." Those observations underline JPMorgan's view that the recent rally has not been broad-based and that many consumer-exposed names have not participated in the upturn.
On the ongoing conflict in the Middle East, the bank took a measured view of how further escalation could play out for markets. "An oil spike and resultant market weakness might not sustain, as an escalation might in fact make an off-ramp more likely," the firm wrote, suggesting a complex and non-linear relationship between geopolitical events and market responses.
For investors with a time horizon extending beyond the next few days or weeks, JPMorgan advised they "should continue using dips to add into" across three-, six- and 12-month time frames. The recommendation is framed around several pillars the bank believes support equities: robust earnings, a growth-policy backdrop that remains constructive, and the view that bond yields are unlikely to maintain their recent spike.
Nonetheless, JPMorgan flagged valuation risks at the U.S. market level, noting that U.S. valuations at 21 times forward price-to-earnings remain stretched. Reflecting that concern, the bank continues to prefer international markets and emerging markets over developed markets.
Within regional recommendations, JPMorgan singled out the U.K. as attractive. The bank described the U.K. as offering "a large valuation discount vs other regions, as well as the highest dividend yield globally," calling it "one of the very good places to hide during the risk-off episodes." That characterization positions the U.K. as a defensive relative value option during market stress.
Takeaway - JPMorgan advocates capitalizing on short-term weakness to build positions over multi-month horizons, while remaining mindful of narrow market breadth and elevated U.S. valuations.