- Investors should treat any sell-off in the stock market as a buying opportunity, according to a Monday note from JPMorgan.
- That's because a likely decline in COVID-19 cases will help spur economic growth and drive stocks higher.
- "We now think that the delta wave has likely peaked and is now receding in the US and globally," JPMorgan said.
Any dip in the stock market, like last week's almost 5% Evergrande-induced decline, should be viewed as a buying opportunity for investors, JPMorgan said in a note on Monday.
The bank believes last week's selling was driven by technical flows from CTAs and option hedgers, and that nothing has fundamentally changed their overall bullish outlook on stocks.
"Any weakness should be used to add to equities," JPMorgan said, pointing to an expectation that the reopening trade will resume its upward trend as more cyclical sectors drive the market higher. That view is bolstered by an eventual normalization of monetary policy, which should drive interest rates higher, benefiting the sectors.
The Fed is expected to begin tapering its $120 billion in monthly bond purchases later this year, and 75% of market participants anticipate at least one interest rate hike in 2022.
Another important factor that should help boost equity prices is the decline in COVID-19 cases, which JPMorgan believes has already peaked in the US and globally.
"We now think that the delta wave has likely peaked and is now receding in the US and globally. As long as COVID-19 continues to ease, strong growth should reside ahead and activity should be bound to re-accelerate into 2022," the bank said.
That pick-up in business activity will be driven by a less uncertain view of the global economy in the wake of COVID-19, and as businesses rebuild their depleted inventories and reinvest in their operations.
Finally, JPMorgan expects positive returns for the rest of 2021 as the stock market exits the weakest month of the year and heads into some of the strongest, based on historical data.
