Buy the dip in stocks as risk of new economic lockdowns due to COVID-19 is low, JPMorgan says

  • Investors should buy the dip in stocks as the risk of a new round of economic lockdowns due to the coronavirus pandemic remains low, JPMorgan said in a note published on Friday.
  • The bank thinks the recent sell-off in the S&P 500 to the 3,000 level is a good place to buy stocks.
  • JPMorgan highlighted three key risks the stock market needs to overcome, including social unrest due to the recent protests surrounding the death of George Floyd, tensions with China, and the lingering of COVISD-19.
  • The note is in line with another note from JPMorgan that detailed why global stocks could rise 47% from current levels.
  • Visit Business Insider’s homepage for more stories.

Investors should be buying the recent dip in stocks, according to a note from JPMorgan published on Friday.

JPMorgan analyst Marko Kolanovic said he is comfortable taking a bullish view on stocks because recent risks surrounding the stock market have been reduced in recent weeks.

In late May, Kolanovic toned down his bullishness on the stock market because of rising tensions between China and the US, and growing social unrest across the US due to the death of George Floyd. But since then, the bank is “more comfortable with taking a positive view – as positioning in equities did not increase significantly and China risks appear to be abating,” according to the note.

The note is in line with another note from JPMorgan that detailed why global stocks could rise 47% from current levels.

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The bank said it thinks that if recent market volatility remains elevated, systematic investors and hedge funds will likely add to equity exposure and opportunistically buy the dips.

Additionally, Kolanovic sees a negative correlation between the three primary risks the market is facing:

“For example, if there are more domestic problems, the [Trump] administration is likely to be less focused on China. If there is less Covid-19 risks, the population and media may be more focused on social issues. Offsetting between these risks means that there will always be some risk and a negative narrative to push, but also it reduces the chance of a worst case scenario where all risks escalate at the same time.”

The bank is not concerned that a second wave of COVID-19 will shut down the economy again, because the modest increase in cases over the past week could be related to higher testing rates, backlogs of hospital visits, and recent large protests, the note said.

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“Unless these circumstances change, we think investors should be buying the dips, such as the one we saw yesterday,” Kolanovic concluded.

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