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- Investors shouldn’t pile into stocks yet — but should be ready to jump in, a JPMorgan strategist said.
- He thinks the Fed could soon pause its rate-hiking campaign, which would lift US equity markets.
- “We think they’re close to wrapping it up, thank goodness,” Phil Camporeale told CNBC Wednesday.
Investors shouldn’t be buying US stocks yet – but they should be on high alert for when the Federal Reserve wraps up its interest rate-hiking campaign, according to a strategist at JPMorgan Asset Management.
Portfolio manager Phil Camporeale expects the US central bank to stop the monetary tightening soon, given inflation is cooling towards the 2% target it wants to reach. The economy is at risk of slipping into a recession, if the Fed presses ahead with outsized rate hikes much longer.
“What’s the benefit of them continuing to move so aggressively, if the cost of those hikes puts undue uncertainty on the economy in a world where inflation is moving in the right direction?” Camporeale told CNBC’s “Closing Bell” on Wednesday.
“We think they’re close to wrapping it up, thank goodness,” he added.
The Fed’s aggressive rate increases — which saw the cost of borrowing rise from near-zero in March to the current level of around 4.5%, an addition of 450 basis points in total — have weighed on stocks. Rising rates eat away at companies’ future cash flows, which help make up their overall valuation.
JPMorgan isn’t telling investors to pile into stocks just yet, the strategist said. It still gives US equities an “underweight” rating, meaning it thinks they will offer lower returns than other assets like bonds.
That’s because the impact of the Fed’s aggressive hiking cycle is still filtering through the stock market, according to Camporeale. Plus, the Fed sets its policy based on inflation data — but experts such as Jeremy Siegel have said the official indicators lag the real amount of inflation in the economy by up to 18 months, opening up the risk of mistakes.
“We’re still underweight right now, because the Fed last year did the quickest monetary tightening that they have ever done,” he said.
“They’ve moved by 450 before, but they’ve never done it that quickly. So there still remains uncertainty about what that lag-defective policy does,” he added.
But the bank is readying itself for any potential Fed-fueled rally by snapping up call options on some S&P 500 stocks, Camporeale said. Call options give investors the power to buy a stock at a certain price before a particular date.
“Right now we’re long some calls on the S&P,” Camporeale told CNBC. “Yes we’re underweight, but we’re long calls that can get us back into the S&P if that underweight is incorrect.”
