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BTFD "Is Coming To An End" JPM Warns, As It Lowers Equity Allocation Most In 6 Years

Tyler Durden's picture




 

Year end is usually a time when Wall Street strategists, so close to that holiday bonus check they can practically smell it, break out optimstic forecasts for the next year and tell their clients to forget any of the pain experienced in the current year and focus on the coming upside. Not so from JPMorgan, however, whose equity strategist Mislav Matejka has just released a note in which the bank lays out why it is the most bearish on stocks it has been in the past 6 years, and with a call that will make every E-trade baby accustomed to BTFDing shiver in their diapers: "The long period of indiscriminately buying any dip might be coming to an end."

Here is JP Morgan with a very morgue-ish prediction, one that will be largely ignored at a time when the ECB has to unveil not one but two QEs just to keep equities flat.

It was a bumpy ride, but global equities appear on track to post marginally positive returns in ’15, at 2.0% MSCI World TR in USD, beating bonds. Since 2009 lows, MXWO is now up 195% TR, vs bonds at 28%. For ’16, we think that the equities risk-reward will be less attractive than it was in the past few years. We reduce our equities OW in a balanced portfolio to a minimal one, at 5% vs benchmark, the lowest we have had since the current upcycle started. The long period of indiscriminately buying any dip might be coming to an end.

JPM dishes out the pain, saying that "we suspect that on a 12- to 18-month horizon, equities are unlikely to perform particularly well":

  1. Start of Fed hikes was typically not a problem, but this time around the move is coming rather late in the cycle. Could Fed end up behind the curve?
  2. On P/Sales metric, equities are trading at the top of the historical range. And this is not on depressed sales; these are also at historical highs.
  3. US Corporate financing gap has turned negative; this was typically not a good starting point.
  4. US profit margins are showing increasing evidence of peaking.
  5. Another consideration is China. We called for near-term stabilization in Chinese activity in September, but the medium-term concerns remain. CNY is back to the highs vs EM FX and credit/GDP ratio is elevated.

The future may not be so bright... but don't sell just yet: wait a few months JPM says.

We do not think that one should sell immediately though. The near-term tactical outlook, for the next 3-6 months, could stay constructive, where the first Fed hike is taken positively, and China is stabilising. We look to use potential strength in 1H as an opportunity to reduce equity exposure further.

The main catalyst for JPM's pessimism: the same one that prompted Tepper to get bearish in August - crosscurrents between central banks, with some tightening while others continue to ease at record levels:

There is a clear divergence in regional cycles evident. US enjoyed seven years of a bull market, and a number of indicators are at peak or close to peaking, such as car sales and profit margins. At the same time, corporate balance sheets are weakening, due to elevated levels of buybacks. We stick to our year-long view of a largely sideways US market from here, but could start to see more clear weakness as the year progresses.

JPM's verdit on the US: "Underweight US in a global portfolio." What about the rest of the world:

Eurozone recovery is still in the early stages, with ECB likely to deliver further support. Our top pick in Eurozone last year was Italy, and we stay with it. Also, we remain OW Germany, and keep our multi-year UW UK stance.

 

Elsewhere, we remain OW Japan, for now, given continued improvement in corporate profitability and in balance sheets. We worry though that BoJ is becoming somewhat reactive and JPY could start to strengthen as ’16 progresses. Given the poor past performance, EM equities should be doing better, but given incoming Fed hikes and strong USD we advise being Neutral EM vs DM. We would look for the opportunity to add once the initial Fed hikes and any potential further CNY devaluation are behind us.

JPM's conclusion: buy winners, sell losers.

We stay with a number of thematic baskets that we advocated for '15: OW Eurozone recovery basket and Eurozone exporters, OW UK domestic basket, OW buybacks basket. We keep our preference for Winners over Losers from low commodity prices. We sell the basket of UK stocks which could suffer due to EU referendum volatility. Rising yields: Buy Winners basket - and Sell Losers basket. We have a basket to hedge against the next potential Chinese devaluation. Value could finally start performing better vs Growth as Fed  hikes, short yields and breakevens move up, even in a down market.

Which is bad news for "active" money managers: if indeed BTFD is finished, an entire generation of traders will have no choice but to learn fundamentals and trade based on such old school drivers as financials, revenues, cash flows, balance sheets, and other unpleasantries which the Fed's 7 year intervention in capital markets relegated to an exhibit in the Museum of not so Modern Financial Art.

 

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Mon, 11/30/2015 - 09:02 | 6855719 Bill of Rights
Bill of Rights's picture

Sounds like a " Go long " trade to me.

Mon, 11/30/2015 - 09:20 | 6855722 Cognitive Dissonance
Cognitive Dissonance's picture

You can't be arrested for going long......yet.

<Eventually you will only be allowed to go long the nifty nine.>

Mon, 11/30/2015 - 09:20 | 6855745 NoDebt
NoDebt's picture

Is the company in question deeply embedded with government?  Then buy it.  If not, sell it.

 

Mon, 11/30/2015 - 12:50 | 6856828 Bokkenrijder
Bokkenrijder's picture

BTFD coming to an end? Okay, but who's gonna buy all that gold then, as the price keeps on dropping...?

Oh? We're talking about stocks now? Ah, in that case BTFD is stupid and silly of course!

Mon, 11/30/2015 - 09:31 | 6855767 order66
order66's picture

Don't worry:

 

"I’ve got growth accelerating a bit because it seems like there are reasons that the economy should get better"

 

J. Lavorgna

Mon, 11/30/2015 - 09:21 | 6855748 Dubaibanker
Dubaibanker's picture

You mean, there is still more money to be lost in the equity markets...[Eyes Wide Open or maybe Shut].

When will HFT traders in the USA be arrested like China has done? [One can dream, can't I :)]

Brad Katsuyama, we support ya!

Mon, 11/30/2015 - 11:01 | 6856127 Butter_cup
Butter_cup's picture

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Mon, 11/30/2015 - 09:02 | 6855720 JustObserving
JustObserving's picture

Old Yeller's put will no longer work?  The horror, the horror

Mon, 11/30/2015 - 09:02 | 6855721 nmewn
nmewn's picture

LMAO!!!

Mon, 11/30/2015 - 09:09 | 6855726 JamaicaJim
JamaicaJim's picture

BullBearish!

 

BuySELL The fucking........

 

wait...

 

PUT/CALL hedge, spider stradle the.....

 

uh....

 

Go LONG/SHORTDAMMIT - and watch yer stops....

 

...play golf like the chimp in "charge"..............only better and not visually FUCKED UP!

 

bingo

Mon, 11/30/2015 - 09:13 | 6855735 Pliskin
Pliskin's picture

So what JPM are saying is (In the above conclusion)...Buy low, sell high.

Well FUCK ME, JPM, that's where I've been going wrong, if only I'd known that earlier...

You bunch of overpaid, suited, walking fecal matter.

Mon, 11/30/2015 - 09:14 | 6855737 Xibalba
Xibalba's picture

we buyin' dips in crudeol'

Mon, 11/30/2015 - 09:22 | 6855749 Tall Tom
Tall Tom's picture

No problem...Sell the Fucking Highs

 

Instead of BTFD you can replace that with STFH

 

On the other hand, on the Short Side, you can still BTFD

 

Fundamentals...Who cares about stinking fundamentals?

 

What is the problem?

Mon, 11/30/2015 - 09:24 | 6855751 Steroid
Steroid's picture

I agree, Sell The Fucking Rip is coming!

Mon, 11/30/2015 - 09:35 | 6855771 slaughterer
slaughterer's picture

This JPM note was available last week to select institutional clients.  It won't take long into 2016 for the selling to start picking up momentum.  

Mon, 11/30/2015 - 09:50 | 6855808 buzzsaw99
buzzsaw99's picture

i wanna fucking take it back!

Mon, 11/30/2015 - 10:25 | 6855904 TabakLover
TabakLover's picture

"do not sell immediately" (we need you to buy from us first)

Mon, 11/30/2015 - 10:28 | 6855928 bluskyes
bluskyes's picture

That''s what they say, what they do remains unknown.

Mon, 11/30/2015 - 10:38 | 6855980 GoinFawr
GoinFawr's picture

 

 

"We rub our eyes and say, Is this America? For, in it there is a New York with hogs prowling in the business streets-hogs which did not give the road, but took it; and bemired or tripped up people who got too slowly out of the way..." - Mark Twain

Mon, 11/30/2015 - 10:54 | 6856071 MadVladtheconquerer
MadVladtheconquerer's picture

Bulls make money; bears make money; the hogs (and the idiots) get slaughtered.

Mon, 11/30/2015 - 10:51 | 6856046 idontcare
idontcare's picture

Yep, we've all had days like that, baby!   Just remember, the market will open up again tomorrow (kind of like the "sun will come up tomorrow").  Trade on!

Mon, 11/30/2015 - 12:10 | 6856580 hmn
hmn's picture

Buy the dip.  Fed and ECB have your back.  Easy money.

Mon, 11/30/2015 - 12:27 | 6856693 Thomas Sowell
Thomas Sowell's picture

Tax HFT = 0 volume?

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