JPMorgan's Matejka warns that "the situation may need to worsen first before it improves"

Investing.com - JPMorgan’s Mislav Matejka warned in a Monday report that the stock market may face more short-term weakness before stabilizing, stating that “conditions may need to worsen before they improve.”

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In a client report, Matejka reiterated the bank’s view that current risk aversion driven by geopolitical tensions should be relatively short-lived and will eventually present opportunities.

He said that the escalation “may be relatively limited in duration, so after the initial risk aversion, it will ultimately be a buying opportunity,” adding that the expected timeline is “a few days to a few weeks, not months or quarters.”

JPMorgan noted that position adjustments are proceeding smoothly, with “oversold areas beginning to appear.”

However, the bank highlighted recent risks from oil and bonds. “This could lead to further short-term spikes in oil prices,” wrote Matejka, noting that the recent gains are “far from extreme” and less than the increases seen during the Russia-Ukraine conflict.

He also emphasized the rise in U.S. gasoline prices, which increased by 10% to 15% over the past week, and a shift in public sentiment. According to the report, U.S. public opinion “remains unsupportive of the recent escalation,” including “among hardline conservatives.”

Given these dynamics, JPMorgan believes the stock market could find a bottom soon. “If this happens within this week or next, we wouldn’t be surprised,” Matejka said, suggesting that investors might consider adding to positions in industrials, semiconductors, non-essential consumer goods, as well as emerging markets and the Eurozone over the next one to two weeks.

JPMorgan also pointed out that severely oversold large cloud computing companies and AI laggards may “offer some better trading opportunities for a period,” though it urged selective buying after any initial rebound.

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