JP Morgan cuts stance on global equities to neutral

JP Morgan told investors again at the start of the week not to overstay their welcome in global equities, adding that the current 'bounce' had already run most of its course.

Two weeks ago, the broker forecast a bounce in share prices given the 'oversold' readings that most so-called technical indicators were flashing.

The broker´s strategist, Mislav Matejka, lowered his stance on global equities on Monday from '5%-overweight' to 'neutral', explaining to clients that while policymakers´ response was likely to keep getting ever more dovish, in the medium-term markets were likely to continue worrying about the stage of the global cycle they were at.

Monday´s change in the recommended allocation to stocks marked the first time since the 2007-08 period that the broker was not outright 'overweight' on shares.

"Tactical indicators are not in “Buy” territory any more, and we would look to start to fade the rebound within days," Matejka said in a research note sent to clients.

The strategist emphasised one particularly worrying development, its lead indicator for economic growth in the Eurozone, the M1 measure of money supply, was "starting to roll-over", "pointing to a loss of momentum down the line".

Volatility linked to China might also resume after the Chinese New Year, he cautioned.

Furthermore, and where the US was concerned, should activity remain resilient shares might still put in a poor performance, "given that Fed is likely to remain in tightening mode in that case, driving strong USD, EM headwinds and the deteriorating credit," the strategist said.

JP Morgan also cut its recommendation on industrials to underweight, following its outperformance in 2015 and as bond yields and industrial production weaken.

Staples on the other hand were bumped up to neutral.

Matejka´s key sector picks for 2016 remained Telecoms and Utilities. He also reiterated his overweigh stance on Japan and the Eurozone.