Short gold, hedge the US election, and buy equities - here are JPMorgan's top trading themes for 2020
- JPMorgan is bullish on 2020.
- In a note, the bank's strategists advised clients to short gold, go overweight on equities, and go underweight on bonds.
- The bank expects recession risks to subside next year, and the biggest overall risk for the year will be the 2020 election.
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JPMorgan is bullish for 2020.
The bank is advising clients to short gold via the options market, go overweight on equities, and go underweight on bonds.
On Wednesday, the bank's strategists, led by Nikolaos Panigirtzoglou, released a note detailing the bank's top 10 market themes for 2020.
The strategists said:
"Our risk-on stance is supported by the improvement in growth indicators over the past couple of months. In particular, we believe that the bottoming out of global manufacturing PMIs and the strength of US labor markets are lowering US recession risks and are boosting confidence to the mid-cycle adjustment thesis."
The bank added that Fed rate cuts earlier this year and the trade war de-escalating also added to the risk-on sentiment.
Go overweight on equities, JPMorgan says, particularly in emerging markets, and go underweight in bonds. It also advised on shorting gold - a very bullish sign.
JPMorgan's view on gold differs from what rival Goldman Sachs is advising. Goldman in a note earlier this week said that it sees gold soaring in 2020, with recession risks arising from the trade war.
The bank also advised clients to "hedge against 2020 US presidential election risk."
Other than gold, equities, and bonds, the strategists also advised on favoring German equities, buying Japanese banks "outright," monetizing "the widening gap between equity and credit cost of protection on European banks," and going long on Indonesia, Russian, and South African bonds.
Here are the bank's top 10 themes:
"1. OW equities vs. higher quality HG corporate bonds
2. Short gold via puts taking advantage of its cheap implied volatility
3. Favor EM equities via buying 6M 102.5% call on the outperformance of EEM over S&P 500, contingent on S&P 500 finishing higher
4. Favor German equities via buying 20-Mar-20 ATM call on the outperformance of DAX > SPX, quanto USD, contingent on SPX up at expiry
5. Buy Japanese banks outright and vs. TOPIX index
6. Monetize the widening gap between equity and credit cost of protection on European banks by selling SX7E 5Y 60% puts vs. buying protection on iTraxx Sub Fin 5Y CDS
7. Reach down the rating spectrum in credit by OW BBBs vs. As and Bs vs. BBs
8. Switch from Non-financials into Financials in Euro HG credit
9. Long Indonesia, Russia and South Africa local bonds
10. Hedge against 2020 US presidential election risk via going long Mar'20 95% puts on the Progressive Democratic Agenda Basket JPAMPROG basket vs. short 95% puts on the S&P 500 and in FX via longs in 3M3M USD/CHF vol"
Read more: Here are Goldman Sachs' top 10 market themes to watch in 2020.
