(Bloomberg) — The S&P 500’s worst decline in six months on Monday is an opportunity to buy stocks as the global economic recovery is about to gain momentum, according to strategists at JPMorgan Chase & Co. led by Marko Kolanovic.
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“The market sell-off that escalated overnight, in our view, is primarily driven by technical selling flows (CTAs and option hedging) in an environment of poor liquidity and discretionary traders’ overreaction to perceived risks,” the strategists wrote in a statement. customer note. “Our fundamental position remains unchanged and we see the sell-off as an opportunity to buy the dip.”
Shares sold on Monday as fears grew over China’s real estate sector and the downsizing of the Federal Reserve. The S&P 500 fell as much as 2.5% for its biggest decline since March, extending its loss from a September 2 peak to nearly 5%.
As the benchmark fell below its 50-day moving average for the second day in a row and failed to recover from a reliable year-round support, computer-aided traders such as commodity trading advisors or CTAs ramped up sales. Volatility-focused funds that allocate assets depending on price fluctuations could be forced to sell as much as $40 billion in assets, warned Nomura Securities strategist Charlie McElligott.
Reiterating the company’s bullish stance on stocks, Kolanovic noted that last week the team raised the S&P 500’s year-end target by 100 points to 4,700 amid a dwindling wave of delta virus cases and better-than-expected gains.
“Risks are well marked and priced in, with stock multiples back at post-pandemic lows for many reopen/recovery exposures,” the strategists wrote. “We look for cyclical stocks to resume leadership as the delta bends.”
The bullish picture stands in stark contrast to Morgan Stanley’s Mike Wilson, whose worst-case scenario has prompted the S&P 500 to fall more than 20% from its peak, a scenario the strategist says seems more likely.
Read more: Nearly $50 billion in inflows from dip-buying equity risk (1)
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