J.P. Morgan's Kolanovic tilts to commodities from stocks

Diego Thomazini

The July employment report was a good sign for risk assets and investors should look to commodities, which have lagged in the risk recovery, according to the J.P. Morgan global markets strategy team.

“Given diminishing risks of a more negative shift in behavior, low positioning in risky assets and widespread negativity in sentiment, as well as robust nominal GDP and revenue growth, risky assets have seen a recovery,” strategist Marko Kolanovic, who has been notably bullish on stocks, wrote in a note. “With commodities lagging other risky assets, we shift some of our risk allocation from equities to commodities.”

“Robust nominal GDP growth has helped both revenue and earnings estimates for the S&P500 index (SP500) (NYSEARCA:SPY) to exhibit resilience despite the US real GDP contraction during the first half of the year,” Kolanovic said.

“In a similar fashion to recent economic releases, the latest US payroll report casts doubt to the idea that the US economy is in recession,” he added. “Better than feared economic data are inducing equity and credit markets to price out recession risk.”

“Oil prices (NYSEARCA:USO) (BNO) (Cl1:COM) (CO1:COM) are down 20% off the March peak, reflecting the repricing of the worst case scenarios for Russian export volumes rather than the risk of full-on recession,” he said. “We see global oil stabilizing in the low-100s in 2H22, as demand dips during slowdowns have historically been short-lived, and in this case is cushioned by supply constraints.”

“In Base Metals, we think the recent relief rally will be short-lived given worsening demand and risks of oversupply. In US Natural Gas (UNG) (NG1:COM), we see asymmetric upside risk for the rest of the summer until demand destruction manifests.”

Goldman Sachs said yesterday it sees a strong case for high oil prices.

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