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Pro Analysis

JPMorgan says Trump's growing protectionist stance may hit the market, protect yourself

Donald Trump
Shannon Stapleton | Reuters
Donald Trump

JPMorgan told clients it is growing increasingly concerned over President Donald Trump's protectionist agenda and recommends buying hedges to protect against a market sell-off.

"We started the year calling for SMid-caps (small- to mid-cap stocks) to be range bound with upside risk based on our assumption that Trump would focus first on implementing those electoral promises that were clear wins (tax cuts and infrastructure spend), leaving the more questionable plans regarding global trade for much later. ... Instead, it seems like global trade is his No. 1 focus from the start, something which in our opinion adds downside risk to our 2017 outlook," global strategist Eduardo Lecubarri wrote in a note to clients Thursday.

"We believe investors seem to be overly complacent, with many metrics pointing to a market that is trading on best-case-scenario assumptions, and with little consideration being given to the fact that 2017 is now arguably the year with the highest political risk that we have seen in the last two decades," he added.

The strategist said Wall Street analysts already estimate 18.1 percent corporate earnings growth in 2017 for small- and mid-cap stocks versus 6.3 percent growth last year. He said the forecast is "aggressive" as the expected tax cuts from Trump have not occurred yet. In addition he cited how volatility measures are low, technical indicators seem "overbought" and equity markets are near all-time highs even with the political risk.