JPMorgan traders are nervous about the current stock market situation. Traders at the bank said Monday they were becoming “tactically cautious” on stocks until bond market volatility and a sell-off in tech stocks subsided. They said they remain confident in the market’s underlying fundamentals but expect more volatility in the short term. “Market settings indicate an impending pullback,” a Monday note from the firm’s trading desk said. “It may take weeks for stocks to find their footing,” he said after Friday’s debacle, which saw the S&P 500 drop more than 2.6%. Recent trading sessions have been particularly volatile. Stocks rebounded Monday after Friday’s sharp decline in tips sent the Nasdaq Composite index down 4%, its worst day in a year. Traders bought on Monday’s dips, with Micron Technology shares, for example, rising 9%. JPMorgan’s trading desk expects a continued selloff in tech stocks, especially ahead of SpaceX’s initial public offering this week, which could see investors take profits in popular sectors such as semiconductors to buy rocket and satellite makers. However, in that scenario, there may not be enough support from other sectors to lift the overall market. On Friday, for example, all major market averages suffered significant declines, even though about half of the S&P 500 sectors were actually positive. Bond Concerns The bond market is another area of concern. The yield on the 10-year U.S. Treasury remains above 4.5%, and interest rates could rise further if there are signs of rising inflation in May’s consumer price index and producer price index, which will be released this Wednesday and Thursday. Indeed, the bank’s traders are confident that the forces supporting the stock market remain healthy, with strong corporate earnings and improving macroeconomic conditions. Friday’s jobs report, for example, confirmed that the labor market is maintaining a surprisingly solid hiring pace. However, short-term setup remains difficult. JPMorgan’s trading desk said it is opting to go long value stocks over growth issues for the time being, and instead directing its investments to defensive sectors such as consumer staples, utilities and energy rather than cyclical companies. “While we believe it makes sense to add to positions this week and next, we are comfortable buying the dip,” the note said.
