JPMorgan: U.S. stocks still a ‘buy’

Despite all the negatives swirling around the stock market, JPMorgan is still positive on U.S. stocks.

“Buy equities,” Dubravko Lakos-Bujas, the Wall Street firm’s U.S. equity strategist, told clients Tuesday, reiterating his call for the S&P 500 stock index to finish the year at 3,000 — or roughly

13% above current levels. Lakos-Bujas says the market is “overreacting” to headlines currently dragging down the market. He believes stillstrong business conditions and the fact stocks are still selling below their historical valuations will enable stocks to overcome “negative narratives,” such as an inflation scare, rising interest rates, a less-friendly Federal Reserve and rising deficits. He also says the effects of the U.S. proposal to levy tariffs on at least

$50 billion of Chinese imports will be smaller than feared.

The S&P 500, he points out, is still about 5% below where it was two weeks ago and also lower than it was before the tax reform bill was passed late last year. The drop in stock prices, however, has come at a time when corporate America is exhibiting higher growth, expanding profit margins and is using cash to buy back their own shares.

Stocks are “cheap,” he argues. They’re trading at 16 times their expected earnings over the next 12 months, below the 30-year median. Stock valuations “look even cheaper if taken in the context of low global interest rates.” There’s also room for earnings estimates to move higher as a result of the benefits from tax cuts.

All this “represents a buying opportunity,” he says.