JPM's Matejka warns 'things might need to get worse before they can get better'

Investing.com -- JPMorgan’s Mislav Matejka warned in a note Monday that equity markets may face more short-term weakness before conditions stabilise and that “things might need to get worse before they can get better.”

In a note to clients, Matejka reiterated the bank’s view that the current geopolitical-driven derisking should be relatively short-lived and ultimately present an opportunity.

He 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,” adding that the expected timeline is “days/weeks, rather than months/quarters.”

JPMorgan notes that position-squaring is well underway and that “oversold areas [are] starting to appear.”

However, the bank flagged near-term risks from oil and bonds. “This could lead to further oil price spikes in the very short term,” Matejka wrote, noting that the move so far is “far from extreme” and smaller than the rally seen during the Russia-Ukraine conflict.

He also highlighted rising U.S. gasoline prices, up 10% to 15% over the past week, and a shift in public sentiment. According to the note, U.S. opinion “is staying out of favour over this recent escalation,” including “on the strong right.”

Given these dynamics, JPMorgan believes equities could find a low point soon. “We would not be surprised if that materializes this or next week,” Matejka said, suggesting investors may look to add Industrials, Semis, Discretionary names, as well as emerging markets and the eurozone over the next one to two weeks.

JPMorgan also pointed to sharply oversold hyperscalers and AI losers, saying the group could see “some better trading for a while,” though it urged selectivity beyond any initial rebound.

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