JPMorgan told clients it is growing increasingly concerned over President Donald Trump’s protectionist agenda and recommends buying hedges to protect against a market sell-off.
Comments by Eduardo Lecubarri:
1. SMid-caps (small- to mid-cap stocks) are said to be range bound with upside risk based on our assumption that Trump would focus first on implementing those electoral promises that were clear wins (tax cuts and infrastructure spend).
2. Global trade seems to be is Trump’s No. 1 focus from the start, something which in our opinion adds downside risk to our 2017 outlook.
3. Investors seem to be overly complacent, with many metrics pointing to a market that is trading on best-case-scenario assumptions, and with little consideration being given to the fact that 2017 is now arguably the year with the highest political risk that we have seen in the last two decades.
4. Wall Street analysts already estimate 18.1 percent corporate earnings growth in 2017 for small- and mid-cap stocks versus 6.3 percent growth last year. Forecast is said to be “aggressive” as the expected tax cuts from Trump have not occurred yet. In addition he cited how volatility measures are low, technical indicators seem “overbought” and equity markets are near all-time highs even with the political risk.
5. Equities have fared extremely well since Trump’s election win. Since Nov. 8. The Dow Jones industrial average, the S&P 500 and Nasdaq composite have risen 8.5 percent, 6.54 percent and 7.24 percent, respectively. The three major indexes, however, were on track for weekly losses after a botched roll-out of a new immigration policy that barred entry to citizens from seven Muslim-majority countries, even obstructing people who had green cards.