J.P. Morgan’s Stephen Parker: New highs for stocks by mid-2024
Sakorn Sukkasemsakorn

With an eye on the Middle East, and specifically the oil markets (DJEEO), (NQDM0001LM), (NQEM0001LM) the outlook for earnings in the equity markets seems to re-accelerate, which could cause new highs by the middle of 2024, said Stephen Parker, head of Specialized Strategies at J.P. Morgan Private Bank.
In a CNBC interview on Tuesday, Parker and Mary Ann Bartels, Sanctuary Wealthâs chief investment strategist, agreed that in the current higher-for-longer rate environment, rates have reached an intermediate top, actually benefiting equity markets. 
What could potentially negatively affect the markets, said Bartels, is if crude oil (CL1:COM) prices could break above $100.
âHigher crude oil prices hurt earnings, and at the end of the day, thatâs what the market is going to respond to, but itâs also going to hurt the consumer,â she said.
In addition, Treasury yields opened up sharply lower on Tuesday, with 10-year (US10Y) slips at the lowest levels in a week. âI think the kneejerk reaction was geopolitical,â said Parker. âBut I think that the Fedâs speak is whatâs going to ultimately drive the direction of rates.â
The Treasury EFTs (SPTL), (VGLT) rallied early in the day after the news broke of the Israel-Hamas war, âbut it was really the dovish comments that you saw from some of the Fed speakers that got that rally to really kicking to gear in the second half of the day,â he added.
On the equities market, he said, âHistory gives us a pretty clear roadmap on geopolitics and the impact on markets.â
Markets, he explained, quickly tend to pivot back towards fundamentals. Depending on the stability of the oil markets, the shift would be back to the Fed, and this seasonâs earnings coming up.
âOur view is that the earnings outlook looks good,â Parker said. âWe think we bottomed out last quarter, we began to re-accelerate, and the fundamental story is a good one, which is supportive of stocks.â
He said he believes there will be a soft landing, with growth next year decelerating, but not to the point where there is a major recession. The new highs in the market next year, he believes, will be largely driven by earning growth, not by valuations, âalthough the sell-off recently has given us a little bit more cushion on the valuation side.â
Bartels added that the ISM Manufacturing data is improving now; âweâre not above 50, but it looks like manufacturing has actually bottomed, inventories are low, theyâre going to have to be rebuilt, and prices paid are actually falling, so itâs really a positive mix,â which should help boost earnings and margins.
âAs long as crude oil doesnât spike higher and stay higher,â she said.
Parker also said he believes that the pullback is an opportunity and that he likes industrials (XLI) because of the long-term policy support for that sector.
He also recommends looking at equal-weighted S&P exposure and mid-cap names. 
âWe know that a lot of the rally this year has been driven by the 'magnificent sevenâ (NVDA), (META), (AMZN), (MSFT), (AAPL), (GOOGL), (TSLA),â he said, but âwe think there is a catch-up trade more broadly across the market, so weâre moving down the capitalization spectrum a little bit, not all the way down to small-cap, because higher rates have a bigger impact there.â
Tech (XLK), in addition, continues to lead the market with its array of megacaps, but âwhat we're looking for is a little bit of a rotation in terms of market leadership, away from the concentrated leadership of the megacap tech story to some of the broader parts of the market,â he concluded.

âWeâve really been focused on semiconductors, and software and services,â said Bartels. âI would also agree that industrials (XLI) are the emerging leadership, and we also continue to like energy (XLE) stocks.â


More on Avantis All Equity Markets ETF:

Seeking Alphaâs Quant Rating on Avantis All Equity Markets ETF
Dividend scorecard for Avantis All Equity Markets ETF