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Analyst’s at JP Morgan are telling equity investors to ignore the bad news coming in the next month as most of it is likely due to the bad weather across the United States.   They are encouraging investors to maintain belief in their recently renewed bullish stance (see here) on the equity markets and not overreact to the downside:

“The next month’s worth of economic data will be full of weather and lunar new year distortions. This will create a lot of confusion, but should also persuade investors not to overreact to data noise. We fully agree, and choose to stay with our medium-term strategy of overweighting equities, commodities, and credit, and trading bonds from the short side. Positions changes should be based more on intrinsic value, taking assets from more nervous market participants, than on short-term market direction.”

Due to the coming likelihood of downside surprises in economic data JP Morgan is taking a longer-term outlook when it comes to the equity markets.   They remain overweight equities, commodities and credit.

  • Fixed income: Take advantage of the rally to reset shorts in US 2s. Sell Agencies against Treasuries.
  • Equities: Stay long, focusing on small caps and cyclical sectors. Euro area underperformance is unlikely to be reversed.
  • Credit: Overweight HY loans versus bonds in CDS indices as their spread is cheap versus the much better recovery rate on loans.
  • FX: There is a near-term bias for EUR to reach the low $1.30’s.
  • Commodities: We turn medium-term bullish on oil.  WTI is expected to rise to US$90 by year-end.

Source: JP Morgan

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