Rising stock prices despite the Ukraine war and inflation? Optimistic JPMorgan fund manager buys more

• For Michele, growth in the US economy remains the base case

• Michele: Falling stock prices and rising bond yields offer opportunities
• JPMorgan analyst recommends buying European bank stocks

Bob Michele, chief investor at JPMorgan Chase’s global fixed income, currency and commodities arm, remains optimistic about the US economy despite the numerous headwinds. Thanks to the continued good demand situation, he considers a recession unlikely, the fund manager told the US news agency Bloomberg. In view of some “tempting valuations”, Michele therefore sees optimal entry opportunities in the international financial markets.

Michele expects the positive economic situation to continue

In the course of the high inflation rates and especially the Ukraine war, pessimistic economic prospects are the order of the day; Stock market experts such as US hedge fund manager Carl Icahn draw bleak future scenarios of impending stagflation. Market strategists at US banks Morgan Stanley and Citigroup also recently warned of a tremor on the stock market.

Michele does not agree with these negative forecasts. On the contrary: For him, decent economic growth in the USA remains the baseline scenario. His team put the probability of a recession at just 15 percent, even though JPMorgan strategists reduced the probability of above-average economic growth as a result of the Ukraine conflict from 80 percent to 50 percent now. How does Michele justify his fundamentally positive expectations?

Although there is an increase in inflation due to higher commodity prices as a result of the western sanctions against Russia, delivery bottlenecks also continue to be a major problem, according to Michele. However, there is such high demand from businesses and consumers in the US that these adversities can be weathered. The “combination of the commodity price shock and a more restrictive monetary policy on the part of the US central bank” is indeed a “significant headwind”, but: “We continue to believe that there is enough growth to weather inflation well.” There is also the possibility of higher fiscal stimuli to deal with the energy transition, military build-up and the refugee crisis.

“Exchanges have already priced in a lot of negative things”

Because of his positive assessment of economic development, Michele is also bullish on the development of the US and European stock markets. He believes that the stock markets have already digested the negative information, inflation and the Ukraine war are already fully reflected in lower asset prices. “There’s still a fair amount of risk, but it feels like a lot has already been priced in.” Interest rates for junk bonds (so-called junk bonds from companies with poor credit ratings) rose by two percentage points, and bonds from companies with higher ratings also offer investors an average of 1.3 percent higher interest rates than before the stock market downturn, emphasizes Michele.

Michele turns risk mode back on

As a result, Bob Michele has been unable to resist adding to his portfolio over the past few days: “Current valuations have been too tempting to ignore.” The JPMorgan banker therefore switched back to risk mode, especially since the US Federal Reserve is aggressively and possibly effectively combating inflation with the recently announced interest rate hikes. Michele’s outlook: “There remains a high level of risk. The war could escalate and cause negative domino effects on other industries, but it feels like the market has already priced in a lot of bad information.” That’s why he’s investing now: “Are we a few weeks too early? Maybe. Will we be a few quarters too early? I don’t think so. There are a lot of people trying to invest their money.”

Michele advises securities from European banks

In addition to quality bonds, the bond expert Michele also buys junk bonds, from which he expects high returns – these junk bonds, however, are associated with default risks that should not be underestimated, since the companies issuing the bonds usually have a low credit rating. On the stock market, however, Michele assesses the prospects for the European banking sector as particularly good. Although banks in Europe suffered particularly badly from the Ukraine war due to their geographical proximity to Russia, they had extremely healthy balance sheets, according to Michele. In addition, the shares of European banks are comparatively cheap to buy.

Many investors seem to share Michele’s confidence, because in the past few trading days, the US and European stock exchanges have been boldly accessed again. US tech stocks such as Apple, NVIDIA and Tesla were particularly in demand. The leading indices in the USA and Europe were able to distance themselves significantly from their low points of the first two weeks of March. However, it remains to be seen whether this is actually a fundamentally underpinned bull market or just a technical countermovement after heavy price losses.

Tim Kerkmann / Editor finanzen.net

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