JPMorgan Says Investors Are Too Bearish, No Selloff In Sight

$JPMorgan (JPM.US)$ $Invesco QQQ Trust (QQQ.US)$ $SPDR Dow Jones Industrial Average Trust (DIA.US)$ $SPDR S&P 500 ETF (SPY.US)$ There’s little reason to fear that the rally that catapulted U.S. stocks to successive records this year will end soon, according to JPMorgan Chase & Co. strategists. In fact, it may get broader. “Conditions for a large selloff are not in place right now given already low investor positioning, record buybacks, limited systematic amplifiers, and positive January seasonals,” the strategists led by Dubravko Lakos-Bujas wrote in a note to clients. “Investor positioning is too bearish -- the market has taken the hawkish central bank and bearish omicron narratives too far.”

While the S&P 500 climbed toward yet another record on Monday, the rally has recently been driven by a narrow group of mega-cap companies, which is reminiscent of the bubble in tech stocks at the turn of the century. With the economic rebound following the pandemic-induced slump now past its peak, some fund managers have warned that the next stage in the cycle is a correction, as central banks and governments wind down stimulus measures to tame surging inflation.

The bullish outlook echoes the one of Goldman Sachs Group Inc. strategists, who also said earlier this month that the narrowing rally doesn’t point to an imminent major drawdown. “Rising concentration is not a reliable indicator for market peaks,” JPMorgan strategists said. “The largest S&P 500 companies currently have proven track record of delivering organic growth, higher pricing power, and superior capital return.”