JPMorgan Says the Market Rout Is Probably Past Its Worst Now

Strategists at JPMorgan Chase & Co. have concluded that most risk assets -- a universe that typically includes stocks and credit -- have seen their low points for the recession that’s gripped economies around the world.

Conditions that JPMorgan had set for market stabilization and revival have largely been met, with recession-like pricing, a reversal in investor positioning and extraordinary fiscal stimulus, strategists led by John Normand wrote in a note Friday. Coronavirus infection rates remain a “wild card,” as they’re still high.

“Risky markets should remain volatile as long as infection rates create uncertainty about the depth and duration of the Covid recession, but enough has changed fundamentally and technically to justify adding risk selectively,” Normand wrote. “Most risky markets have probably made their lows for this recession, except perhaps oil and some EM currencies beset by debt-sustainability issues.”

Markets have been roiled by the effects of coronavirus's spread

Most risk assets should trade higher in the second quarter of the year, Normand said. He recommends that investors average into oversold markets, particularly those where central banks are buying directly. (Averaging into markets entails spreading out the purchases over time rather than diving in in one go.)

Not everyone sees the bottom as necessarily in.

Goldman Sachs Group Inc.’s David Kostin reiterated in a note Friday that he expects the market to turn lower in coming weeks. He cited a checklist for a sustained rally similar to Normand’s -- of slowing viral spread, evidence that fiscal and monetary policy stimulus is working, and a bottoming in investor positioning and flows.

Gavekal Research Ltd.’s Anatole Kaletsky said in a note Monday that it’s too early to buy equities, citing reasons including “surprisingly complacent” investor sentiment and historical data showing bear markets almost never end on a single massive sell-off without retesting the bottom.