After one of the worst starts to the stock market in 95 years, JPMorgan says it's time to buy

Published Fri, Mar 18 202210:31 AM EDT

Stocks are experiencing the fifth-worst start to the year since 1927, but JPMorgan said it's time to start buying the beaten-down averages. Despite 2022's steep pullback, the Wall Street firm still expects the S & P 500 to finish the year at the 4,900 level, implying more than 11% upside from here. "While Fed tightening remains the strongest headwind for the economy, we believe the market still has upside," Dubravko Lakos-Bujas, JPMorgan's chief U.S. equity strategist, said in a note. The major averages have been absorbing a war between Russia and Ukraine, historically high inflation and an aggressive pivot from the Federal Reserve. This has left the S & P 500 off by more than 8% year-to-date, the fifth-worst start for the average in 95 years, according to JPMorgan. The global financial crisis (encompassing the starts in both 2008 and 2009), the Covid-19 pandemic and President Franklin D. Roosevelt's enaction of the New Deal are the only other years since 1927 that the S & P 500 has started off this poorly. JPMorgan said equity markets are already discounting significant negative news. Investor sentiment is "extremely poor" and positioning is at its lowest level since 2020, the firm said. "These risks are largely frontloaded and compressed into the first few months of this year, setting up for a potentially more normal second half," Lakos-Bujas said. The firm said the economy should transition out of this cycle, rather than slipping into recession. "The market is a compressed spring going into this month/quarter-end rebalance, which should result in net buying of equities," he added. Picks for the rebound JPMorgan continues to favor the energy sector due to "steadily improving fundamentals." The firm also sees room to run for growth stocks, including some high-beta and hypergrowth names, given their reasonable valuations after a steep sell-off this year. Take a look at some of JPMorgan's highest conviction ideas after the market pullback. — with reporting from CNBC's Michael Bloom.

Traders on the floor of the New York Stock Exchange, March 17, 2022.

Brendan McDermid | Reuters

Stocks are experiencing the fifth-worst start to the year since 1927, but JPMorgan said it's time to start buying the beaten-down averages.