U.S. stock investors have become so confident that strategists at JPMorgan are concerned.
“Complacency is evident in market sentiment, with VIX near record lows and positioning increasing” to above-average levels, a team led by Mislav Matejka wrote in a note. “There is no safety net anymore,” and FOMO (fear of missing out) is in full swing.
U.S. stocks rise this year on hopes interest rate It will peak soon, and the economy is doing better than expected. Technology stocks in particular gained on the back of optimism about the development of artificial intelligence. Matejka said that while stocks are typically weak in September, sentiment and positioning are far from bearish.
“There is no buffer anymore as investor sentiment is now fully in favor of a soft landing,” the strategists said.
His team wrote that the 12-month forward price-to-earnings ratio for the MSCI US Index of 19 is already excessive at these levels, especially relative to higher real yields. While P/E ratios are positively correlated with EPS momentum, earnings revisions are likely to be revised downward again, they said.
International stocks continue to look more attractive than U.S. stocks, Matka said.His team remains overweight the rest of the world, with a focus on Switzerland, while still underweight the U.S. — a strategy that hasn’t worked out yet as the S&P 500 is Outstanding This year’s MSCI World Index (excluding the US).
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