According to a note on Monday, a pivot by the Federal Reserve away from interest rate hikes is imminent.
The bank recommends investors to buy growth stocks for more upside if the Fed makes a move like that.
In March, the Fed raised its interest rate by 25 basis points. It has raised rates by another 125 basis points since then and is expected to increase rates by another 75 basis points at its meeting this Wednesday in a bid to fight off 40-year highs in inflation.
The level of oil prices, which have dropped about 20% since early June, is one of the factors that could cause inflation to roll over, according to JP Morgan.
It's likely that the oil decline signals softer demand, but it's also a sign of a cooling in inflation, according to JP Morgan. After peaking at $5 earlier this summer, the average price for a gallon of gas dropped to $4.35.
The reset in activity is what many want to see in order to be able to look through.
That sets the market up for a new environment in which bad news is seen as positive, as it enabled the Fed to keep focusing solely on the inflation risk.
Bad news in the economy could cause the Fed to shift its focus away from inflation and towards the jobs market, which could lead to a pause in rate hikes as the central bank tries to gauge the impact of its recent tightening on economic growth.
It is possible that a bottom in the stock market has been reached by virtue of the "bad news is good news" environment.
We argued that the bearishness on earnings could lead to a phase where earnings are seen as bad. The Q2 results are softer than usual, but the equity markets have held up well.
It could be a good time for investors to add exposure to growth stocks because of depressed investor and consumer sentiment readings.
Bond yields are likely to be stalling as we move into 2H because of the turn in the growth policy tradeoff. We advised to reverse our preference for value because of this. The most recent rebound in growth stocks is likely to go on.
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