JP Morgan Predicts Challenging Environment for Stocks in First Half of 2024

According to Yahoo News, JP Morgan anticipates a challenging economic landscape for risky assets in the first half of 2024 as investors seek clarity on monetary policy direction. The strategists at JP Morgan, led by Mislav Matejka, believe that the risk-reward for equities will improve once the US Federal Reserve advances with interest rate cuts. Currently, Fed funds futures are pricing in over 100 basis points of cuts in 2024, with a 40% chance they begin as early as March. JP Morgan predicts that earnings growth in Europe will be flat in 2024, provided no recession occurs. They warn that expectations of a re-acceleration in corporate topline and margins will be challenged due to weakening pricing and volumes. The bank maintains an 'underweight' position in European equities but acknowledges that they are not expensive, particularly when compared to stretched valuations in US stocks. The pan-European STOXX 600 index has risen 7.6% this year, compared to an 18.5% increase in the S&P 500 index. Easing monetary policy could lead to a reversal of JP Morgan's underweight opinion on European equities in the second half of 2024, according to Matejka. At the sector level, the bank downgraded European food retail, hotels and travel, and semiconductors to 'underweight'. They foresee increased price competition in food retail, which could result in margin contraction in 2024, while concerns over pricing, volumes, and inventory could impact chip stocks. JP Morgan continues to hold an 'overweight' position in Japan stocks and sees a 'more realistic chance' for emerging market stocks to potentially outperform, especially if China's economic growth surprises on the upside.