By Nikhila Natarajan
New York, Apr 10 (IANS): Global investment analysts at a closed door JP Morgan huddle are betting that "risky assets" will cruise, market volatility will decline, asset bubbles are still far away in the broader equity market and that US president Joe Biden will remain focused on "supercharging" the US economy before midterm elections in 2022.
"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, such as innovative ESG sectors like clean energy, solar energy and Electric Vehicles, along with crypto assets and SPACs," JP Morgan wrote in a "Global Research Perspectives" background note reviewed by IANS.
The bank's forecast comes as signs of rapid hiring pick up in the US economy, boosted by swift vaccinations across the adult population. It is a "blessing in disguise" that the global recovery is not synchronized, the bank wrote. "The staggered rally has prevented broad-based asset bubbles."
"The scenario for the global environment remains favourable for risky assets backed by above-trend global GDP growth, continued policy support and progress on vaccination and re-opening of economies," reads the note.
JP Morgan lists 10 takeaways from the meeting, with the top three headlining US and China: 1. US growth is entering a boom period with positive spillovers; 2. The post pandemic recovery is different from the "scarring" after the 2008-2009 financial crisis as both the US and China will close the output gap and will likely be operating above full employment by the end of 2022; 3. The staggered global economic recovery - led by China last year, moving to the US now, with Europe to come later this year - supports the market recovery and risky assets will continue to benefit.
JP Morgan's assessment points to the Biden administration likely doubling down and "supercharging" the economy before the 2022 mid-term elections. The high level view is that the passage of the $ 2.3 trillion infrastructure bill is likely to happen by end-September using budget reconciliation even if tax increases are not approved.
The optimism comes on the heels of Biden getting a surprise boost in recent weeks, after the US Senate parliamentarian greenlighted a workaround that would allow Democrats in the 50-50 chamber to rely on a 51-vote win to advance crucial bills, rather than the 60 votes typically needed. The rule can now be used more often, giving Democrats a way to steer around the GOP blockade.
"The implications of this ruling could mean that Democrats could try and pass much of the infrastructure bill, especially the parts pertaining to social equity, through budget reconciliation," notes JP Morgan.
On the corporate tax rate, the dominant view is that greenlighting for a 28 per cent rate is "highly unlikely to pass". An increase in the "22-24" per cent range is seen as "more likely".
"Disorderly rise is the word on US bond yields as the "projected $3.8 trillion budget deficit will require $3 trillion in net new US Treasury supply with ongoing concerns on whether flows will be absorbed smoothly."
The JP Morgan insights are drawn from two April 7 sessions on the sidelines of the IMF/ World Bank Spring Meetings featuring external speakers, J.P. Morgan's Policy Center, Federal Government Relations and Global Research team to discuss the priorities for the Biden administration for the next 100 days and the macro and market implications.