JPMorgan provides 5 charts that suggest the stock market still has ‘plenty of room’ to rise from current levels

• Stocks still have plenty of room to rise from current levels, according to a note published by JPMorgan on Friday.
• The bank largely pointed to investors’ underweight equity positioning as a main driver for stocks to move higher over the medium to longer term, despite near-term risks of elevated momentum.
• Investors’ allocation to stocks is 40%, which is below historical averages and is well below the early 2018 high of 49%.
• With bonds yielding next to nothing, investors may return to stocks and drive up prices as fears over the coronavirus pandemic subside.
• Here are the five charts JPMorgan pointed to in support of its bullish view on stocks.
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Stocks still have “plenty of room” to rise further from current levels after a nearly 40% rally off the lows, according to a note published by JPMorgan on Friday.

The bank acknowledged that short-term risks are present, especially with elevated momentum positioning by traders, which signals overbought levels.

But over the medium to longer term, JPMorgan said it thinks stocks are the place to be.

The short-term overbought condition is “not enough by itself to stop or derail a bull market underpinned by four medium to longer term drivers,” the bank said.

Those four drivers include a still-low overall equity positioning backdrop; a rapid healing of funding markets; a structural change in the liquidity and interest rate environment; and a rapid economic recovery driven by steady lockdown relaxation.

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Part of JPMorgan’s argument is similar to a recent note from Bank of America, which pointed to a potential “Great Rotation” by investors from bonds into stocks.

Despite the nearly 40% rally in stocks since the March 23 low, investors’ stock allocation “isn’t much different from last March’s backdrop as the rise in cash holdings and the expansion of the value of the bond universe partly offset the equity rally,” the bank said.

JPMorgan said it thinks investors will increase their allocation to stocks given the favorable backdrop of high liquidity and low interest rates.

Here are the five charts JPMorgan used to expand on its reasoning for being bullish on stocks.

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