JPMorgan Chase & Co. strategists have been bearish on stocks since October 2022.

But that appears to be changing, according to a report released Tuesday by Dubravko Lakos-Bujas, chief global equity strategist at JPMorgan Chase & Co.

While Lakos-Bujas did not update his firm’s year-end S&P 500 price target of 4,200, which implies a sharp 27% drop from current levels, he did advise investors to be less pessimistic about the market.

“We are adjusting our view to be long defensive stocks and short cyclicals,” Lakos-Bujas said.

The Federal Reserve’s rate cuts and new stimulus measures from China are driving the change in sentiment for Lakos-Bujas.

“The policy support in the world’s largest economy comes at a time when U.S. growth has been unexpectedly resilient, with tight labor markets, continued government deficit spending and record highs for stocks, credit and housing prices,” Lakos-Bujas said.

JPMorgan also pointed to the overall state of American consumers, whose total wealth has increased by $50 trillion since the outbreak of the COVID-19 pandemic.

According to the Federal Reserve, American consumers have about $185 trillion in assets, mostly stocks and bonds, real estate and cash, and just $21 trillion in debt. That’s a healthy balance sheet.

Lakos-Bujas is also encouraged by solid corporate earnings growth, predicting it will accelerate to 12% in the next two years from 3% in the past two years.

“US companies’ increasing focus on using pre-tax income for investment spending rather than returning after-tax profits to shareholders through buybacks has also stimulated the economy,” Lakos-Bujas explained.

Driven in part by the boom in artificial intelligence technology, large technology companies are expected to accelerate their R&D and capital expenditure investments to more than $500 billion per year.

“These drivers, combined with U.S. exceptionalism, are helping to offset uneven macro weakness, in our view,” Lakos-Bujas said.

He added: “While it is too early to assume this is a turning point, it does suggest that a recession is unlikely in the near term, especially as unexpectedly strong job growth and a decline in the unemployment rate have broken the slowing job market trend.”

But Lakos-Bujas isn’t entirely bullish on stocks. The strategist warned that the presidential election in November could bring volatility to the market depending on the outcome, and that lower interest rates could be a headwind to corporate profits, especially in the financial sector.

Article forwarded from: Jinshi Data