JPMorgan’s top strategist stays bearish stocks, but thinks this asset class may catch up
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JPMorgan’s chief global markets strategist Marko Kolanovic advises investors to play commodities against recession risks. “It feels like a good entry point for a catch-up in commodities vs. equities – amidst a broad-based rally in risky assets, commodities price in by far the highest risk of recession and stand out as under-valued, under-owned, and backed by compelling fundamentals and technicals,” he wrote in a Monday note. Kolanovic named natural gas as his top pick within the commodities sector. Investors can look to the United States Natural Gas Fund LP (UNG) to gain exposure to the commodity; it’s down about 48% in 2023. The strategist forecasts U.S. natural gas prices to undergo a 25% rally in the next few months on expectations of a supply growth reversal. His second-favorite commodity investment choice are agricultural commodities. The Invesco DB Agriculture Fund (DBA) , up nearly 11% in 2023 allows investors to play the sector. The fund offers exposure to a range of agricultural futures, including sugar, soybeans and corn. The strategist also called out oil as his third-preferred area. The U.S. Brent Oil Fund LP (BNO) , which is down less than 1% in 2023, is one way for investors to participate in the space. Investors shopping for commodity-focused ETFs should be aware that funds that invest in futures tied to these assets may see a fluctuation in returns due to events like contango and backwardation. Contango is a situation in which futures that are dated further out are priced higher than the spot price. Backwardation is what happens when the spot price is higher than the price of the approaching futures’ contracts. To be sure, Kolanovic maintains a neutral stance on base metals. “For base metals to fully join a 2H23 tactical rally, we still likely need an additional catalyst, whether more aggressive Chinese stimulus or strengthening in global manufacturing PMIs, to solidify stronger demand expectations,” said Kolanovic. —CNBC’s Michael Bloom contributed to this report.
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