Now is the time to buy stocks as inflation will resolve itself and the global economy will avoid a recession, JPMorgan's Marko Kolanovic says

According to a Monday note from the bank, sky-high inflation isn't scaring away a bullish view on stocks from a man.

Inflation will resolve on its own, as distortions related to the COVID-19 pandemic fade away, and investors should buy stock. If inflation slows, that will lead to a Fed pivot, which will be positive for the asset class.

With just one month before the US elections, we believe it would be a mistake for the Fed to increase risk of a hawkish policy error.

The Fed's decision to raise interest rates by at least 75 basis points next week was solidified by Tuesday's consumer price index report, which showed prices rose more than expected.

The consumer price index increased in August Inflation slowed from the prior pace of 8.5%, but was not as high as expected. According to the report, rising costs of food, new cars, and heating are offset by falling gas prices.

The central bank is expected to become more balanced after the Fed's September rate hike as it weighs future rate hikes against signs that inflation could be easing.

Despite the continued readings of inflation, there's still plenty of upside for stocks because a global recession will be avoided.

"Our expectation that the global economy will stay out of recession, increasing fiscal stimuli, and still very low investor positioning and sentiment should thus continue to provide tailwinds for risky assets, despite the more hawkish central bank rhetoric recently," he stated.

It's around the 10th percentile for both systematic and discretionary investment funds. That suggests a reversal in sentiment would cause investors to buy.

Corporate earnings continue to defy economic momentum and remain fairly resilient to broader macro trends, which is good news for bullish investors.

The divergence with the PMIs continues to be unprecedented. We think that this can stay the case and that any earnings downside could be less than in a recession.

The second-quarter earnings decline didn't happen and now third-quarter earnings are expected to remain positive. The stock market should be resilient as long as corporate earnings do not decline.