The Invesco QQQ Trust QQQ traded higher by 0.6% on Wednesday morning as the Nasdaq looks to extend its winning streak to eight consecutive days. Unfortunately, JPMorgan Chase & Co. JPM says investors shouldn't chase the recent rally.
The Nasdaq Composite was hit particularly hard by rising interest rates in 2022 due to its high exposure to high-growth tech stocks. However, recent economic data suggests inflation is trending steadily lower, increasing investor optimism that the Federal Reserve may pivot from rate hikes to rate cuts sooner than feared.
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After its positive start on Wednesday morning, the Nasdaq is up 7% so far in 2023 compared to just a 4.5% gain for the S&P 500.
Sell The Rip? Unfortunately, J.P. Morgan strategist Marko Kolanovic warned investors on Tuesday that investors may be getting ahead of themselves in assuming the worst of the inflation fallout is in the rear-view mirror. In fact, Kolanovic reduced his recommended equity allocation and said there is a real risk central bank overtightening could lead to a recession by the end of the year.
"We remain cautious on risk assets and are reluctant to chase the past weeks’ rally as recession and overtightening risks remain high, and we believe that a lot of good news is already in the price in terms of inflation moderation or the potential for a soft landing,” Kolanovic said.
He said investors should take advantage of the recent rally by taking some profits in top-performing stocks given the Federal Reserve is likely to continue to raise interest rates in the first quarter.
Despite the caution, J.P. Morgan sees modest gains for the S&P 500 in 2023. The firm's year-end target of 4,200 suggests about 3% upside from current levels.
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Benzinga's Take: It is somewhat puzzling why tech stocks would be rallying with interest rates already at their highest level in 15 years and expected to continue to rise. However, the stock market is forward looking, so investors may already be anticipating a Fed pivot in late 2023 or 2024.
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