Stay defensive, strategists at JP Morgan say

Strategists at JP Morgan recommended clients stick to a defensive stance, referencing the risk of a sharp correction in US stocks, a phase of significant de-risking in Chinese assets and the possibility that Italian political risks might come to the fore sooner than expected.

Looking to the US, they pointed out how Citi's Economic Surprise Index had moved into negative territory. That, they said, was typically associated with more defensive market leadership.

The CESI also had a good correlation with the S&P 500 and was pointing to greater than 10% downside for US stocks, JP Morgan said.

In parallel, new project starts in China had turned negative for the first time since summer 2015, they said, and that was followed by a phase of significant de-risking.

However, unlike then, another big stimulus package to stabilise activity might not be forthcoming.

The euro area could see some softness too, they said, pointing to recent readings for money supply on an M1 basis in the single currency bloc, which pointed to lower prints ahead for Eurozone purchasing managers' indices.

Commodity prices had also weakened year-to-date and yield curves were flattening again. The inability of bond yields to break out of their year-to-date range was also an increasing problem for market breadth, health and leadership.

Potentially weaker activity and pricing prints going forward might also be headwinds for the earnings outlook, they said.

Lastly, the risk existed that Italian political concerns might retake centre stage earlier than the consensus expected.