By Sam Boughedda
JPMorgan analyst Marko Kolanovic said in a research note Monday that equity multiple compression already exceeds an average recession.
Kolanovic, who previously stated that even if oil surges to $150 a barrel, he doesn't see a recession, explained that the S&P 500 has seen its second sharpest P/E de-rating of the past 30Y exceeding the typical compression seen during prior recessions.
"While the current equity multiple is in-line with the historical median, we believe it is better than fairly valued given the shift in industry mix to higher quality companies," wrote the analyst. "Although the activity outlook remains challenging, we believe that the risk-reward for equities is looking more attractive as we move through 2H. Historical downgrade cycles also suggest the worst for EM equity EPS and returns is likely behind us."
JPMorgan initiated longs in 5Yx5Y U.S. breakeven wideners as "Powell's dovish tone reduces the downside risks to breakevens."
"Inflation and gas concerns prompted downward revisions to our Euro area growth forecasts, where we now expect a mild GDP contraction in 4Q22-1Q23," added Kolanovic.
"In FX, incremental Fed dovishness isn't likely to pose a threat to the dollar, as USD typically does well in recessionary environments. We stick with USD net length, and add to JPY vs EUR. Natural gas shortages in Europe may trigger gas-to-oil switching and boost oil demand, but this is offset by normalized Libyan supply, keeping our oil forecast unchanged."