By Senad Karaahmetovic
Just a day after Morgan Stanley warned its clients that the bear market is likely to continue in March, JPMorgan’s equity strategists echoed their colleagues’ sentiment toward U.S. equities.
The S&P 500 had another solid day yesterday, gaining 0.31% to trade near the 4000 handle once again.
JPMorgan strategists warned that the relative equity valuation is at the high end of the historical range.
“History implies that for current level of real rates the S&P 500 multiple is ~2.5x overvalued. Furthermore, one could argue that global central bank liquidity acted as a tailwind for risk assets in recent months; however, we see increasing probability of that tailwind turning into a headwind,” they wrote in a note to clients.
Moreover, the strategists reminded investors that declining central bank liquidity tends to increase financial stress. Historically, this type of environment results in equity underperformance.
“The risk-reward for equities is unattractive at current levels, particularly for Small-caps that are disproportionately more sensitive to rising cost of capital,” they added in a client note.
The S&P 500 is down 2.3% in February, despite printing the highest level since August earlier this month.