J.P.Morgan says cycle not yet over in stocks, reiterates 'overweight' on UK

Equity strategists at JP Morgan told clients that stocks continue to offer a "supportive" risk-reward and that the cycle was "far from over".

They also reiterated their upgrade of UK stocks to 'overweight' after six years with a "cautious" stance.

Company earnings were set to continue growing, activity in China set to bottom out and the Fed was not expected to continue turning "ever more hawkish" relative to what was the currently priced-in and investor sentiment had also swung towards too bearish, they said.

Related to the Fed's hiking cycle, the US dollar might be peaking, they added.

"We think it is wrong to position for a recession given still extremely favourable financing conditions, very strong labour markets, underleveraged consumer, strong corporate cash flows and banks' strong balance sheets."

Regarding the recent sell-off in a number of high-multiple growth rates, the strategists said: "The question is whether one should buy back Quality, especially if one sees a potential peak in inflation.

"In our view the key is the direction of bond yields – we expect them to continue moving higher, and that was always consistent with Cyclical leadership."

In slightly more constructive fashion, strategists at Citi upgraded their recommendation for the European Technology space to 'tactical overweight', arguing that real US Treasury yields had overshot, as had that sector.

"This raises the prospect of a short-term bounce in the sector and we move to a tactical Overweight. The sector may come under further pressure later in the year when the TIPs sell off resumes."