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Feb. 2, 2021, 12:43 p.m. EST

Why the WallStreetBets crowd isn’t scaring JPMorgan or Goldman away from stocks

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By Barbara Kollmeyer

Stocks are ready to build on Monday’s bounce, which followed the worst week for U.S. equity indexes since October. We’ll refocus on big earnings, with e-commerce giant Amazon /zigman2/quotes/210331248/composite AMZN +0.60% and Google parent Alphabet /zigman2/quotes/202490156/composite GOOGL -0.11% due after the market close.

Our call of the day comes from two Wall Street banks, JPMorgan and Goldman Sachs, who don’t seem too concerned about recent stock losses that have been fueled by the fierce battle between retail investors — egged on by Reddit sub-thread WallStreetBets — and hedge funds over shorted stocks like videogames retailer GameStop /zigman2/quotes/203755179/composite GME -1.12% .

In a note to clients, London-based JPMorgan Cazenove strategists, led by Mislav Matejka, acknowledge that recent equity pullbacks have fueled concerns over potentially bigger losses, and acknowledge a “healthy skepticism toward the chorus of pundits who immediately declared a buying opportunity.”

“While there are likely fundamental, and not only technical, drivers behind the weakness, which could linger, we believe that these roadblocks might not be in position for long,” says the JPMorgan team, in a note to clients.

As for the roadblocks, Matejka and co. say worries about froth from liquidity spilling over into markets have been simmering for a while, with some tactical indicators looking stretched. But those have calmed down, and that short squeeze fueled by retailers seems to be running its course.

Read: How will this wild GameStop saga end? The ghosts of trading catastrophes past offer clues

“Beneath the surface, the consolidation was going on for two months now, with value/momentum down 9% in Europe, and as much as 15% in the U.S. since early December. The excess is being taken out, leading to a better starting point.”

Also, one technical signal could be ready to favor the bulls. “100% of the time post the VIX /zigman2/quotes/210598281/delayed VIX +5.48% spike, such as seen last week, stocks would be higher over 1 and 6 months, outside recessions,” says the team, referring to the Cboe Volatility Index, a measure of expected S&P 500 /zigman2/quotes/210599714/realtime SPX +0.36% volatility over the next 30 days.

On the fundamental side, JPMorgan says the market seems ready to look past headwinds such as a stronger dollar, stalling bond yields and mixed earnings, and focus on the likely re-acceleration of economic activity in March-April. The team sees risk assets pushing higher in the first half of the year.

Meanwhile, over at Goldman, a team of strategists led by Alessio Rizzi says despite recent market turmoil, a “large unwind of the November gains” is unlikely. In stocks’ favor: an improving market backdrop fueled by COVID-19 vaccines, U.S. stimulus, and a largely unchanged macro outlook.

“As a result, we think the risk of a bear market over the next year is fairly low. While uncertainty remains high near term considering some of the positioning metrics such as hedge fund leverage are still elevated, the recent market turmoil has not changed our constructive view on pro-cyclical assets for the rest of 2021,” the strategists say.

Note, GameStop is down another 20% in premarket after losing 31% on Monday, as some say a chunk of short positions has been eliminated . One glance on WallStreetBets this morning shows plenty of posters are still fired up .

Read: Hey, Robinhood traders: These ‘non-bubble’ stocks can also be good bets for you

The markets

U.S. stocks /zigman2/quotes/210598065/realtime DJIA +0.48% /zigman2/quotes/210599714/realtime SPX +0.36% /zigman2/quotes/210598365/realtime COMP +0.10% are surging, along with European equities /zigman2/quotes/210599654/delayed XX:SXXP +0.05% , and Asian markets had an upbeat day . Meanwhile, silver prices are pulling back from eight-year highs , after the Chicago Mercantile Exchange raised margin requirements on futures contracts.

The buzz

Drug company Pfizer /zigman2/quotes/202877789/composite PFE +2.58% says its COVID-19 vaccine it developed with BioNTech /zigman2/quotes/214419716/composite BNTX +7.69% will bring in about $15 billion in sales for 2021. Shares of e-commerce group Alibaba /zigman2/quotes/201948298/composite BABA -0.17% are flying after an earnings beat . Motorcycle maker Harley-Davidson /zigman2/quotes/207565294/composite HOG -0.15% are sinking after a surprise loss, while package shipper UPS /zigman2/quotes/201245396/composite UPS +0.04% is surging on upbeat results . Along with Amazon, burrito giant Chipotle /zigman2/quotes/200781108/composite CMG -0.48% and videogames maker Electronic Arts /zigman2/quotes/206954087/composite EA -1.20% will report after the close.

/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,399.44
+20.35 +0.60%
Volume: 3.19M
April 16, 2021 4:00p
P/E Ratio
81.42
Dividend Yield
N/A
Market Cap
$1701.59 billion
Rev. per Employee
$297,430
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 2,282.75
-2.50 -0.11%
Volume: 1.31M
April 16, 2021 4:00p
P/E Ratio
38.89
Dividend Yield
N/A
Market Cap
$1544.31 billion
Rev. per Employee
$1.35M
loading...
/zigman2/quotes/203755179/composite
US : U.S.: NYSE
$ 154.69
-1.75 -1.12%
Volume: 5.21M
April 16, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$10.96 billion
Rev. per Employee
$424,150
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/zigman2/quotes/210598281/delayed
US : Cboe Indices
17.14
+0.89 +5.48%
Volume: 0.00
April 19, 2021 7:35a
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/zigman2/quotes/210599714/realtime
US : S&P US
4,185.47
+15.05 +0.36%
Volume: 2.21B
April 16, 2021 5:15p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
34,200.67
+164.68 +0.48%
Volume: 348.18M
April 16, 2021 5:15p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,185.47
+15.05 +0.36%
Volume: 2.21B
April 16, 2021 5:15p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
14,052.34
+13.58 +0.10%
Volume: 4.03M
April 16, 2021 5:16p
loading...
/zigman2/quotes/210599654/delayed
XX : STOXX
442.71
+0.22 +0.05%
Volume: 0.00
April 19, 2021 2:35p
loading...
/zigman2/quotes/202877789/composite
US : U.S.: NYSE
$ 38.57
+0.97 +2.58%
Volume: 52.83M
April 16, 2021 4:02p
P/E Ratio
22.56
Dividend Yield
4.04%
Market Cap
$209.74 billion
Rev. per Employee
$533,860
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/zigman2/quotes/214419716/composite
US : U.S.: Nasdaq
$ 151.54
+10.82 +7.69%
Volume: 4.62M
April 16, 2021 4:00p
P/E Ratio
1,446
Dividend Yield
N/A
Market Cap
$33.99 billion
Rev. per Employee
$283,276
loading...
/zigman2/quotes/201948298/composite
US : U.S.: NYSE
$ 238.69
-0.40 -0.17%
Volume: 14.42M
April 16, 2021 4:00p
P/E Ratio
28.14
Dividend Yield
N/A
Market Cap
$652.77 billion
Rev. per Employee
$622,130
loading...
/zigman2/quotes/207565294/composite
US : U.S.: NYSE
$ 40.38
-0.06 -0.15%
Volume: 2.18M
April 16, 2021 4:00p
P/E Ratio
11,537
Dividend Yield
1.49%
Market Cap
$6.20 billion
Rev. per Employee
$881,386
loading...
/zigman2/quotes/201245396/composite
US : U.S.: NYSE
$ 179.71
+0.07 +0.04%
Volume: 2.82M
April 16, 2021 4:04p
P/E Ratio
109.38
Dividend Yield
2.27%
Market Cap
$155.94 billion
Rev. per Employee
$155,492
loading...
/zigman2/quotes/200781108/composite
US : U.S.: NYSE
$ 1,535.04
-7.35 -0.48%
Volume: 187,115
April 16, 2021 4:02p
P/E Ratio
122.86
Dividend Yield
N/A
Market Cap
$43.47 billion
Rev. per Employee
$68,007
loading...
/zigman2/quotes/206954087/composite
US : U.S.: Nasdaq
$ 141.05
-1.72 -1.20%
Volume: 2.47M
April 16, 2021 4:00p
P/E Ratio
34.95
Dividend Yield
0.48%
Market Cap
$41.06 billion
Rev. per Employee
$557,755
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