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Goldman, JPMorgan Say Buy the Dip as Inflation Is Transitory

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What You Need to Know

  • The strategists expect the surge in consumer prices, fueled by higher energy costs, will fade.
  • The pullback was no greater than about 5% after 330 days of gains, wrote JPMorgan strategists.

Stagflation fears may be rising, but strategists at some of Wall Street’s biggest banks say it’s a good time to buy the dip in stocks.

“Despite near-term uncertainty, we expect the equity market will continue to rally as investors gain confidence that the current pace of inflation is transitory,” Goldman Sachs Group Inc. strategists led by David J. Kostin wrote in a note to clients.

Strategists at JPMorgan Chase & Co. led by Mislav Matejka concurred, writing that stagflation fears will start to fade.

Jitters over surging prices and concerns that the post-pandemic recovery is now past its peak dragged the S&P 500 Index 5% below its September record last week, after almost a year without a correction of this magnitude. Persistent supply bottlenecks, along with a slowdown in China, have raised doubts about whether stock valuations can be stretched any further.

A Deutsche Bank AG survey of market professionals suggested that the majority of them see at least another 5% pullback in equities by the end of the year. There’s “a fairly strong consensus” that some kind of stagflation is more likely than not, according to the survey results published Monday.

Goldman and JPMorgan resoundingly disagree.

“We believe this dip will prove a good buying opportunity, as 5% pullbacks usually have in the past,” Goldman strategists said.

“We finally got some weakness after 330 days of no greater than 5%+ pullback, but we don’t expect it to last, and advise to buy into the dip,” JPMorgan strategists wrote.

Bullish calls from JPMorgan and Goldman add to an increasing number of voices saying that the current spike in consumer prices, largely fueled by a jump in energy costs, will be temporary.

“The surge in energy prices will slow growth, but in our view is not sufficient to cause recession,” UBS Global Wealth Management strategists led by Mark Haefele wrote in a note on Monday. “Energy prices are likely to stabilize or moderate through next year.”

They also added that central banks will likely look through higher energy prices as opposed to overreacting.

–With assistance from Thyagaraju Adinarayan.

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