Optimism about stocks is still too high as the US economy is showing 'the overheat before the retreat', JPMorgan strategist says

JP Morgan building. REUTERS/Eduardo Munoz

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JP Morgan building. REUTERS/Eduardo Munoz

  • Investors are still too optimistic about the outlook for stocks, JP Morgan Asset Management’s Meera Pandit told CNBC.
  • The market’s reacting to strong economic data, but that’s ‘probably the overheat before the retreat,’ she said.
  • The rally is built on investors choosing the best narrative, but ‘you can’t have your cake and eat it too,’ Pandit said.

Investors are still a little too optimistic on stocks, given the recent strong economic data out of the US suggests a bout of overheating before a potential downturn, according to JP Morgan Asset Management’s global market strategist Meera Pandit.


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“Right now it’s reacting to very strong economic data, overshoot on jobs, CPI, PPI retail sales, industrial production, but I would say that this is probably the overheat before the retreat in the economy,” Pandit told CNBC on Thursday.

While money markets seem to be correctly pricing in the outlook for the Federal Reserve’s monetary policy, there’s is still some confusion about what stock traders are basing their positions on, she said.

“There’s been this market narrative that you can see disinflation and avoid a recession. But ultimately, demand impacts both growth and inflation in the same way,” she added.

The US economy will either see a slowdown and disinflation, or more room for inflation to run if growth is resilient, which would force the Fed to continue hiking interest rates, Pandit said, adding that both scenarios are pessimistic for risk assets.

After a dismal 2022, US stocks have risen in the early months of this year amid optimism that an end is in sight to US interest-rate increases as inflation cools. The benchmark S&P 500 US equity index has rallied just over 8% and the tech-heavy Nasdaq Composite has advanced more than 15% year-to-date.

US labor-market data has remained strong in recent months and inflation fell in January to 6.4% — the lowest level in over a year. That’s stoked some investor optimism that the central bank may be able to bring inflation down without tipping the economy into a recession. 

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