It’s not easy to be bullish on stocks these days for a very simple reason: a hawkish Fed.
The U.S. central bank has already announced three 75-basis-point rate hikes in a row. Market participants are expecting another one of the same magnitude at this week’s FOMC meeting.
But according to JPMorgan’s trading desk, there’s one specific scenario that could send stocks soaring.
The bank’s team projects that if the central bank raises interest rates by just 50 basis points and Fed Chair Jerome Powell expresses his willingness to tolerate inflation and tight labor market conditions, the S&P 500 could climb more than 10% in a day.
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“It is difficult to conceive of a scenario where this outcome occurs given inflation levels and a tight labor market,” the team writes. “Should this outcome occur, the immediate reaction could produce a double-digit one-day return for equities.”
Right now, the bank’s economists are still projecting a 75-basis-point increase like other market participants. But that doesn’t mean there’s no opportunity for equity market investors. Here’s a look at three stocks that JPMorgan finds particularly attractive — even in these market conditions.
No one who spends $1,600 for a fully decked-out iPhone 14 Pro Max would call it a steal. But consumers love splurging on Apple products anyway.
Earlier this year, management revealed that the company’s active installed base of hardware has surpassed 1.8 billion devices.
While competitors offer cheaper devices, millions of users don’t want to live outside of the Apple ecosystem. The ecosystem acts as an economic moat, allowing the company to earn oversized profits.
It also means that as inflation spikes, Apple can pass higher costs to its global consumer base without worrying too much about a drop in sales volume.
After seeing Apple’s earnings report last week, JPMorgan analyst Samik Chatterjee said that the company’s “resilience to a tough macro through the mix of Products and Services is likely to drive a re-rating.”
The analyst maintains an ‘overweight’ rating on Apple and a price target of $200 — around 32% above the current levels.
As a leading designer of graphics cards, Nvidia shares have had a solid bull run over the past decade. But that rally came to an abrupt end in November 2021. Since reaching a peak of $346 in late November, the stock has fallen by a staggering 60%.
Nvidia’s plunge is substantial even when compared to other beaten-down stocks in the semiconductor sector.
Nvidia’s business is still on the right track, making it a particularly intriguing contrarian idea. The chipmaker generated $6.70 billion of revenue in its fiscal Q2. The amount represented a 3% increase year over year.
Revenue from data center increased 61% year over year to $3.81 billion.
JPMorgan analyst Harlan Sur recently has an ‘overweight’ rating on Nvidia and a price target of $220. That implies a potential upside of 61%.
Many consider big data to be the next big thing. And that’s where Snowflake shines.
The cloud-based data warehousing company, founded in 2012, serves thousands of customers across a wide range of industries, including 510 of the 2021 Forbes Global 2000.
Momentum is strong in Snowflake’s business. In the three months that ended July 31, revenue surged 83% year over year to $497.2 million. Notably, net revenue retention rate clocked in at a solid 171%.
The company continued to score large customer wins. It now has 246 customers with trailing 12-month product revenue of more than $1 million, compared to 116 such customers a year ago.
JPMorgan analyst Mark Murphy has an ‘overweight’ rating on Snowflake and a price target of $210 — roughly 30% above where the stock sits today.
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