JPMorgan says now is the time to buy stocks with a hawkish Fed already priced in

• As US equities cause whiplash amid jitters over a more aggressive Fed, JPMorgan strategists said now is the time to buy.
• It is unlikely the central bank will move "further into hawkish territory, at least relative to what is priced in currently."
• Also, fourth-quarter earnings have beaten Wall Street expectations, supported by upbeat growth in GDP.
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As US equities cause whiplash amid jitters over a more aggressive Federal Reserve determined to cool inflation, JPMorgan strategists said now is the time to buy.

It is unlikely the central bank will move "further into hawkish territory, at least relative to what is priced in currently," analysts led by Mislav Matejka said on Monday. With headline inflation seen peaking, the Fed now has more room to maneuver, the strategists added.

Furthermore, fourth-quarter earnings from US companies have generally beaten Wall Street expectations, supported by upbeat growth in gross domestic product, the strategies added.

And given that the fourth-quarter consensus hurdle rate — the minimum acceptable annual return — is atypically lower than the previous quarter, they are expecting further surprises this earnings season. 

"We continue to see gains for earnings, and believe that consensus projections for 2022 will again prove too low," they said. "Q4 2021 EPS is expected by consensus to be sequentially below Q3, which doesn't typically happen. Strong beats are likely for the Q4 reporting season."

The strategists also said they expect the effects of the pandemic to fade further, as Omicron proves to be less fatal compared to other coronavirus variants. And while key macro indicators slowed in China in 2021, the strategists see things starting to rebound.

"We think it is wrong to position for a recession given still extremely favorable financing conditions, with real rates at -70bp, very strong labor markets, unleveraged consumer, strong corporate cash flows, strong banks balance sheets, as well as the turn for the better in China policy outlook," they said.

The view of JPMorgan analysts goes in contrast with other banks. For instance, Morgan Stanley said late last month it sees more downside ahead for US equities, warning that "winter is here."