JPM’s Matejka says buy the dip

JPMorgan strategist Mislav Matejka says investors should buy dips over a 3-, 6- and 12-month horizon, arguing the risk of a prolonged stagflationary shock is overstated. The bank cites strong earnings, a constructive growth-policy backdrop, and bond yields unlikely to sustain their recent spike, while warning that U.S. valuations at 21x forward P/E remain stretched. JPMorgan continues to favor international and emerging markets over developed markets, with the U.K. highlighted for its valuation discount and high dividend yield.

Analysis

The key market implication is not the direction of the geopolitical headline, but the asymmetry between a short-lived oil shock and a slower-moving earnings/positioning reset. If energy spikes without a sustained supply interruption, the first-order hit is to crowded cyclicals and consumer defensives already trading on weak breadth, while the second-order winner is cash-generative, high-dividend equity that can absorb higher discount rates better than long-duration growth. That makes the current tape more about relative rotation than outright de-risking.

The market’s fragility is concentrated under the surface: narrow leadership means any further impulse higher in yields or oil can force systematic sellers to unwind the same crowded exposures at once. But that also creates an opportunity because panic hedges in geopolitics tend to decay quickly once the probability of a negotiated off-ramp rises; the best short-window expression is via options or pairs, not directional index shorts. Over a 3-12 month horizon, stronger earnings and still-benign growth policy argue that this is more likely to be a buying dip than the start of a durable stagflation regime.

The contrarian miss is that investors may be underappreciating how much of the “risk-off” trade is already embedded in positioning, especially in non-U.S. equities where valuation support is stronger. If U.S. multiples compress further, the first place capital can rotate is into cheaper international equities and high-yielding defensive geographies, rather than sitting in cash. The U.K. stands out because it combines valuation support with income carry, which matters if volatility persists for several weeks but not quarters.

Key Decisions for Investors

• Buy UK equity exposure via EWU on any 1-2 day risk-off flush; target 6-9 month hold with 10-15% upside and lower beta than U.S. equities if geopolitical noise persists.
• Rotate from U.S. broad growth into EAFE/EM basket via EFA and EEM; pair long EFA/EM vs short QQQ for a 3-6 month relative-value trade as breadth stays narrow and U.S. multiples remain stretched.
• Use XLE or individual integrateds as a tactical hedge only if crude gaps higher, but size via short-dated calls rather than outright longs; the trade should be treated as 2-4 week event protection, not a core position.
• Fade consumer discretionary/consumer staples laggards only after confirmation that oil/yield stress is fading; avoid catching the knife until breadth improves for at least 3-5 sessions.
• If volatility spikes again, sell put spreads on quality international dividend names or ETFs rather than shorting the index outright; the risk/reward favors collecting decay while positioning for a quick normalization.