Top Wall Street short sellers rare change of heart! First time in two years issuing bullish signal on US stocks

Since October 2022, JPMorgan Chase's strategic analysts have been bearish on the stock market.

However, according to a report released by JPMorgan Chase's Chief Global Equity Strategist Dubravko Lakos-Bujas on Tuesday, this situation seems to be changing.

While Lakos-Bujas did not update the company's year-end target price for the S&P 500 index of 4200 points (implying a significant 27% drop from current levels), he did suggest investors to reduce their bearish sentiment towards the market.

Lakos-Bujas said, "We are adjusting our long-standing bullish view on defensive stocks and shorting cyclical stocks."

Rate cuts by the Federal Reserve and new stimulus measures in China are driving Lakos-Bujas' change in sentiment.

Lakos-Bujas stated, "Policy support from the world's largest economy is coming at a time when U.S. growth unexpectedly shows resilience, accompanied by tight labor markets, ongoing government deficit spending, and record highs in stock, credit, and housing prices."

JPMorgan Chase also highlighted the overall condition of U.S. consumers, whose total wealth has increased by $50 trillion since the COVID-19 pandemic.

According to Federal Reserve data, U.S. consumers hold around $185 trillion in assets, primarily consisting of stocks, bonds, real estate, and cash, with debt amounting to only $21 trillion. This is a healthy balance sheet.

Lakos-Bujas is also encouraged by robust corporate earnings growth, expecting earnings growth to accelerate from 3% over the past two years to 12% in the next two years.

Lakos-Bujas explained, "U.S. companies are increasingly focusing on using pre-tax income for investment spending rather than returning post-tax profits to shareholders through buybacks, which is also stimulating the economy."

Part of this is driven by the prosperity of artificial intelligence technology, with large tech companies expected to accelerate their research and capital expenditure investments by over $500 billion annually.

Lakos-Bujas said, "In our view, these driving factors, along with the American exceptionalism, are helping to offset macroeconomic weaknesses."

He added, "While it is still early to assume this is a turning point, it does indicate a low likelihood of an economic recession in the short term, especially with unexpectedly strong job growth and declining unemployment rates breaking the trend of a slowing job market."

However, Lakos-Bujas is not entirely bullish on the stock market. The strategist warned that the presidential election in November could bring volatility to the market depending on the outcome, and lower rates could pose resistance to corporate profits, especially in the financial sector