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(Bloomberg) — Retreating inflation could force companies to relinquish some of the pricing power they’ve wielded recently, a headwind likely to weigh on equities in the final months of 2023, according to JPMorgan Chase & Co.’s Marko Kolanovic.
The bank’s chief markets strategist cautioned Monday in a note to clients that retailers, automakers and airlines are among industries that will take the biggest hit from cooling inflation after they were able charge higher prices over the past two years.
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“Big picture, we see the growth-policy tradeoff as challenging into year-end,” Kolanovic said, while reiterating a warning about the lagged impacts of interest rate hikes.
US equities snapped a four-day slide on Monday, with the S&P 500 Index rising 0.4% as Wall Street shook off its worst weekly selloff since March. The US stock market has been on shaky ground since August as investors consider the impact of sustained higher interest rates on the economy.
While Kolanovic has maintained his defensive stance on equities broadly, JPMorgan upgraded its view on global energy stocks to Overweight, citing upside risks to oil for the near and long terms.
Last week, the bank said oil could climb to as high as $150 a barrel and urged investors to buy into the space, with an energy supercycle roaring back after a pause.
The bank picked 13 “key global equities to own” through the upswing, calling the group the “supercycle club.” The recommended names include Exxon Mobil Corp., Marathon Oil Corp. and Baker Hughes Co. as well as Canadian oilsands producer Cenovus Energy Inc. Globally, the bank also recommends buying TotalEnergies SE, Saudi Aramco, PetroChina and Australia’s Beach Energy Ltd.
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“We are turning bullish once again on the global energy complex,” Kolanovic wrote in his weekly note on Monday, acknowledging that energy stocks have struggled to keep pace with the surge in crude oil prices, which is outperforming by a wide margin. That dynamic could change as JPMorgan sees rising oil prices drawing more investors into he stocks.
Also breaking with his bearish stance on the broader equity market, Kolanovic said Japanese equities are likely to outperform as tighter policy regimes around the globe spur prolonged interest from overseas investors.
Meanwhile, the strategist also said China is now headed to a “buying zone.”
Investors may find trading opportunities in Chinese equities as upcoming October data rolls out, with travel and retail sales out of the so-called Golden Week set for release next month, along with property transaction numbers. JPMorgan’s bullish call is also based on possible announcements on local government financing vehicles and new stimulus measures from the Communist Party’s Politburo Standing Committee meeting expected at the end of October.