Why the WallStreetBets crowd isn’t scaring JPMorgan or Goldman away from stocks

Why the WallStreetBets crowd isn’t scaring JPMorgan or Goldman away from stocks

Stocks are ready to build on Monday’s bounce, which followed the worst week for U.S. equity indexes since October. We’ll refocus on big earnings, with e-commerce giant Amazon

and Google parent Alphabet

due after the market close.

Our call of the day comes from two Wall Street banks, JPMorgan and Goldman Sachs, who don’t seem too concerned about recent stock losses that have been fueled by the fierce battle between retail investors — egged on by Reddit sub-thread WallStreetBets — and hedge funds over shorted stocks like videogames retailer GameStop

In a note to clients, London-based JPMorgan Cazenove strategists, led by Mislav Matejka, acknowledge that recent equity pullbacks have fueled concerns over potentially bigger losses, and acknowledge a “healthy skepticism toward the chorus of pundits who immediately declared a buying opportunity.”

“While there are likely fundamental, and not only technical, drivers behind the weakness, which could linger, we believe that these roadblocks might not be in position for long,” says the JPMorgan team, in a note to clients.

As for the roadblocks, Matejka and co. say worries about froth from liquidity spilling over into markets have been simmering for a while, with some tactical indicators looking stretched. But those have calmed down, and that short squeeze fueled by retailers seems to be running its course.

Read: How will this wild GameStop saga end? The ghosts of trading catastrophes past offer clues

“Beneath the surface, the consolidation was going on for two months now, with value/momentum down 9% in Europe, and as much as 15% in the U.S. since early December. The excess is being taken out, leading to a better starting point.”

Also, one technical signal could be ready to favor the bulls. “100% of the time post the VIX

spike, such as seen last week, stocks would be higher over 1 and 6 months, outside recessions,” says the team, referring to the Cboe Volatility Index, a measure of expected S&P 500

volatility over the next 30 days.

On the fundamental side, JPMorgan says the market seems ready to look past headwinds such as a stronger dollar, stalling bond yields and mixed earnings, and focus on the likely re-acceleration of economic activity in March-April. The team sees risk assets pushing higher in the first half of the year.

Meanwhile, over at Goldman, a team of strategists led by Alessio Rizzi says despite recent market turmoil, a “large unwind of the November gains” is unlikely. In stocks’ favor: an improving market backdrop fueled by COVID-19 vaccines, U.S. stimulus, and a largely unchanged macro outlook.

“As a result, we think the risk of a bear market over the next year is fairly low. While uncertainty remains high near term considering some of the positioning metrics such as hedge fund leverage are still elevated, the recent market turmoil has not changed our constructive view on pro-cyclical assets for the rest of 2021,” the strategists say.

Note, GameStop is down another 20% in premarket after losing 31% on Monday, as some say a chunk of short positions has been eliminated. One glance on WallStreetBets this morning shows plenty of posters are still fired up.

The markets

U.S. stock futures



are popping higher following Monday’s strong session. Also climbing are European equities
and Asian markets had an upbeat day. Meanwhile, silver prices

are pulling back from eight-year highs, after the Chicago Mercantile Exchange raised margin requirements on futures contracts.

The buzz

Drug company Pfizer

and e-commerce group Alibaba

are among a batch of companies reporting ahead of the open. Shares of motorcycle maker Harley-Davidson

are sinking after a surprise loss, while package shipper UPS

is surging on upbeat results. Along with Amazon, burrito giant Chipotle

and videogames maker Electronic Arts

will report after the close.

Fast-food giant McDonald’s

has reportedly been testing its new pea-based McPlant burger — the patty is provided by Beyond Meat

— in Denmark and Sweden.

Meeting with Republicans on Monday, President Joe Biden said he wouldn’t agree to a slimmed down version of his $1.9 trillion proposed package.

A good-news milestone: U.S. vaccinations are roughly equal to total COVID-19 cases.

The tweet

Here’s why some think the Tesla chief executive is taking a Twitter


Read: SpaceX to fly four space tourists by end of the year

Random reads

Singer-songwriter Dolly Parton on why she twice rejected former President Donald Trump’s Medal of Freedom offer.

National Basketball Association legend LeBron James vs. ‘a courtside Karen.’

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