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Stocks have risen sharply over the last year, helping the Dow Jones finally break the 36,000 barrier.Xinhua News Agency/Getty Images
  • The crash in innovation stocks favored by Cathie Wood is likely to have reached its end point, according to JP Morgan.

  • Many of the stocks down 80% or more have overshot to the downside and now is a good time to buy.

  • It is time to start adding risk because markets may anticipate these turning points sooner.

According to a Thursday note from a JP Morgan analyst, there could be a potential turn around in beaten-down innovation stocks that are typically favored by Ark Invest.

Many fast-growing innovation stocks that have little-to-no profits but saw a boom in business during the Pandemic have crashed more than 80% from their record highs, trading below their pre-pandemic levels. A few high-profile examples are Zoom Video, Peloton, and Docusign.

There are even bigger opportunities in the stock market despite the sell-off.

Markets may anticipate these turning points sooner, and we think it is time to add risk in areas that have overshot on the downside.

The potential for a commodity supercycle, as well as the bubble in innovation stocks, were all warned to investors in 2021. All of the warnings have come to pass, including the decline in ARK Invest's flagship fund, the price spikes in oil, wheat, and nickel, and the invasion of Ukraine.

It is our opinion that the forecasts have been fulfilled. While the commodity supercycle will persist, in our view, the correction in bubble sectors is likely finished, and a comprehensive resolution may take a few months.

He warned that not all assets are cheap amid rising interest rates and a slowing US economy.

There are great opportunities in beaten down segments that include innovation, tech, biotech, emerging markets, as well as more broadly in smaller cap and more volatile stocks.

Many of those market segments are trading near rock- bottom valuations and are also pricing in an economic recession, which is a scenario that is not likely to happen.

The segments that we call the bubble are down 80% from the time we called them, which we think is the end of the correction. He said that many of the market segments trade at all-time valuation lows.

The original article is on Business Insider.

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