Investing.com -- JPMorgan strategist Mislav Matejka said U.S. equities remain expensive and sentiment is still elevated, warning that the market is “not a good place to hide in, in contrast to historically.”
He argues that recent gains lack fundamental support, with earnings expectations too high and investor positioning skewed by last year’s rally.
“The actual recession could still be avoided, but if one were to come through, the views by many that it is already in the price could prove to be too optimistic,” Matejka wrote.
The strategist points out that the S&P 500 is trading at 21x forward earnings, with consensus forecasting 10% earnings per share (EPS) growth for this year and 14% for next—levels he sees as inconsistent with a slowdown scenario.
“That is far from pricing in any meaningful recession fears,” Matejka said.
He reiterated his bearish stance on the U.S. Growth trade and tech sector due to the “significant U.S. overvaluation” and “extreme” concentration risks. JPMorgan cut its long-standing overweight on Growth last summer and maintains a cautious view.
“Tech might not be a safe haven,” Matejka added, arguing that recent behavior has been more akin to high beta—stocks that tend to move more sharply than the overall market and are typically more sensitive to risk sentiment.
Matejka cautions that soft economic indicators are signaling potential weakness ahead, which could soon be reflected in hard data. He also warns that the Federal Reserve may struggle to respond effectively, as rising inflation expectations risk leaving policymakers behind the curve.
While he does not expect full decoupling across regions, Matejka said the risk-reward for international equities remains better than for the U.S.
He highlights the favorable setup in Japan equities, ongoing reforms, and strong domestic positioning, while calling the U.K. a “good place to hide” given its valuation discount and defensive tilt.
“U.K. is comparatively less trade sensitive, and we think that it could show another positive spell of performance if volatility returns,” Matejka added.
As for the eurozone, the strategist believes it “will not decouple from the U.S., but doesn’t need to underperform,” citing fiscal expansion in Germany as a supportive factor.
JPMorgan remains neutral on emerging markets but sees potential support from a weaker U.S. dollar and further China stimulus.
For now, the Wall Street bank expects softer U.S. equity performance ahead, as “activity, earnings and expectations could all reduce” while macro and trade uncertainty persists.