JPM's Dubravko Sees Strong Buying Opportunity Into FOMC, Reiterates Kolanovic's View That Selling is Overdone

January 26, 2022 6:44 AM EST
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JPMorgan’s Chief Equity Macro Strategist & Head of Latam Equity Research, Dubravko Lakos-Bujas, sees a strong buy-the-dip opportunity in equity markets this week.

The strategist believes that the S&P 500 drawdown of 11% is “masking the severity of this sell-off given its hefty bond-proxy / low-vol stock exposure.

“The stock market is not only in correction, it is already in bear market territory without a recession in sight. On the valuation side, S&P 500 post-pandemic re-rating has almost been completely erased with PE now only 0.5x higher (largely explained by TSLA addition) vs. pre-pandemic level when rates were more restrictive and fundamentals were less supportive,” Lakos-Bujas wrote in a client note.

He reiterated the view shared earlier this week by his colleague Marko Kolanovic that selling seems overdone, at least in the short-term.

Dubravko sees “a bullish setup (especially for small caps) going into today’s FOMC and month-end rebalance.” On what we could expect from the Fed today, Dubravko expects “a more dovish tone relative to extreme investor expectations.”

Moreover, equities should benefit from the upcoming month-end pension rebalance while buybacks should blackout on Monday.

“Investor sentiment is extremely bearish. Investors have crowded into Low Vol stocks and are again paying record premium for safety. Equity multiple re-rating seen since March 2020 has been entirely wiped out despite stronger fundamentals and much lower rates,” Lakos-Bujas added.

By Senad Karaahmetovic | [email protected]

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