- More gains in the stock market are likely as a staggered global economic recovery unfolds, JPMorgan said in a note on Thursday.
- "While there is a lot of talk about asset bubbles, it is hard to see one in the broad equity market," JPMorgan said.
- These are the 3 factors that will support a continued rise in risky assets like stocks, according to JPMorgan.
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The stock market has more room to the upside as a staggered global economic recovery unfolds, JPMorgan said in a note on Thursday.
China led the post-pandemic economic recovery last year, and now the US is beginning to see mounting evidence of a strong economic rebound. Europe will likely see an economic rebound materialize later this year as COVID-19 cases subside, according to JPMorgan.
But the staggered economic recovery is actually "a blessing in disguise" for the stock market, as a synchronized global recovery would have likely meant an overshoot in US treasury yields, which would have weighed on the valuations of risky assets like stocks, the bank said.
Now, three factors serve as a solid backdrop for the market to continue rising to new record highs, aside from the staggered nature of the current economic rebound. Those factors are above-trend global GDP growth, continued fiscal and monetary policy support from governments and central banks around the world, and progress in the vaccination and reopening of economies, said JPMorgan.
The bank highlighted that investor positioning in stocks remains below average in a historical context, which suggests there are still potential buyers on the sidelines that can throw in the towel and buy stocks, further boosting the market higher.
A continued decline in volatility will also lure systematic quant funds to pile into stocks in this low volatility environment, the note said. The VIX, also known as the stock market's fear gauge, hit a new post-pandemic low on Thursday as it fell below the 17 level.
And while some investors worry that a bubble could be forming in the broader stock market, JPMorgan isn't so sure.
"While there is a lot of talk about asset bubbles, it is hard to see one in the broad equity market, but certain segments that have more than tripled in price over a short period of time are likely experiencing bubbles," JPMorgan said.
The bullish stance from JPMorgan lines up with Wharton professor Jeremy Siegel's view. Siegel told CNBC on Thursday that the stock market could surge as much as 40% from current levels as the economy begins to heat up.
