Downside risks for equities are still ‘meaningful’ – JPMorgan

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JPMorgan analysts have warned the firm’s clients that downside risks remain strong despite certain positive developments that have marginally improved the sentiment around stocks.

Easing restrictions in China, a potential near-term peak in bond yields, as well as still downbeat sentiment and positioning, are keeping equities off the lows, they told clients in a note. Still, the continued monetary policy risks are “meaningful” given that the Fed “sounded more hawkish with risks of higher terminal for longer.”

“We maintain the Fed will see sufficient progress on inflation to pause at 4.75% in February, but risks are skewed to more hikes,” they further stated.

Overall, the activity momentum for the U.S. stocks is “likely to stay weak near-term.” the analysts are more positive about the UK stocks given “record discount vs other regions, high dividend yield, and benefit to exporters from weak GBP. “

As far as the currency market is concerned, JPMorgan analysts urged investors to “stay defensive and long USD.”