The images are by Johannes Eisele.
The S&P 500's climb to record highs has been concentrated on a narrow group of stocks, suggesting investors have been cautious amid Omicron's emergence, but the time is right for investors to take more risk, according to JP Morgan.
The S&P 500 ended last week with its 68th record closing high, putting its year-to-date gain at nearly 26% and beating the investment bank's target of 4,700.
The move has largely been anchored on a rotation into "pseudo-bonds," with investors paying a premium for low-volatility stocks such as mega-caps as they've dealt with the new Omicron variant of coronaviruses, hawkishness among central banks, and poor
The rotation has contributed to a bear market in riskier, value and growth stocks.
Equity drawdowns and multiple de-ratings have been severe outside of the Big 10 stocks in the US, according to the equity analysts led by Dubravko Lakos-Bujas.
The average drawdown for the index's constituents was 38%, but it has declined by 7% from its 12-month high.
Some argue that the price action is a sign of late-cycle dynamics or a market correction. Lakos-Bujas wrote that the conditions for a large sell-off are not currently in place.
The strategists said investor positioning has been too bearish.
The current setup in the market is very attractive for high beta stocks. On the value and cyclical side, they see reopening stocks such as travel, leisure, hospitality and experiences, as well as energy stocks worthy of consideration.
The stocks have already seen significant multiple de-rating, yet the fundamentals for many of the themes remain intact with continued secular growth and large market sizes.
The largest out performance for high-beta stocks tends to be in January. "We expect the January effect to be even more pronounced this time around given extreme positioning and sentiment, with funding likely to come from increasingly crowded low-volatility stocks where investors are paying a record premium for shelter," said JP Morgan.
Business Insider has an original article.
