JPMorgan Chase & CoStrategists led by Marko Kolanovic said that recent market concerns about stagflation were "in the wrong place" and that the cycle towards low valuations and economically sensitive stocks should continue.
Economic growth is likely to remain above trend as major central banks appear to give priority to maintaining economic recovery over curbing inflation, the strategists wrote in client reports. The report said last week's pullback in US bond yields was "technical and temporary" and could resume the rally, supporting a "sustained and significant" asset rotation until the end of 2021.
"Central bank policy has only just begun to tighten, and there is plenty of room in our view because inflation is driving down real interest rates," Kolanovic and other strategists wrote. This makes the central bank look "more slow". "overall, we expect the moderation in inflation to be limited and core inflation to rise sharply, which is not reflected in market pricing."
Stocks have risen this month, with the S & P 500 rebounding from its biggest drop since March 2020, as corporate earnings helped offset concerns about factors such as Fed weight cuts and soaring commodity prices. But overall, growth stocks outperformed value stocks.