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JPMorgan's Top Strategist Remains Bearish on Stocks, But Expects This Asset Class to Close the Gap

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JPMorgan Strategist Recommends Commodities as Recession Hedge

Natural Gas: A Top Pick

JPMorgan's chief global markets strategist, Marko Kolanovic, suggests that investing in commodities is a wise move to hedge against the risk of recession. Kolanovic believes that commodities are currently undervalued and under-owned, making them an attractive investment option. He specifically highlights natural gas as his top pick within the commodities sector. Investors can gain exposure to natural gas through the United States Natural Gas Fund LP (UNG), which has seen a 48% decrease in value in 2023. Kolanovic expects natural gas prices to rally by 25% in the coming months due to a reversal in supply growth.

Agricultural Commodities: Another Favorable Choice

In addition to natural gas, Kolanovic recommends agricultural commodities as another potential investment opportunity. The Invesco DB Agriculture Fund (DBA) allows investors to access a variety of agricultural futures, including sugar, soybeans, and corn. This fund has experienced an 11% increase in value in 2023. Kolanovic believes that agricultural commodities are backed by strong fundamentals and technicals, making them an attractive option for investors.

Oil: A Third Option

Kolanovic also suggests considering oil as a potential investment option. The U.S. Brent Oil Fund LP (BNO) provides investors with exposure to the oil sector. Despite a slight decrease of less than 1% in value in 2023, Kolanovic believes that oil still holds promise as a commodity investment.

Considerations for Commodity-Focused ETFs

Investors interested in commodity-focused exchange-traded funds (ETFs) should be aware of the potential for fluctuations in returns. ETFs that invest in futures tied to commodities may be affected by situations like contango and backwardation. Contango occurs when futures with later dates are priced higher than the spot price, while backwardation happens when the spot price is higher than the price of approaching futures contracts.

Base Metals: A Neutral Stance

Lastly, Kolanovic maintains a neutral stance on base metals, suggesting that additional catalysts are needed for these commodities to experience a significant rally. He suggests that either more aggressive Chinese stimulus or a strengthening in global manufacturing PMIs could solidify stronger demand expectations for base metals. In summary, JPMorgan's Marko Kolanovic advises investors to consider commodities as a hedge against the risk of recession. He specifically recommends natural gas, agricultural commodities, and oil as potential investment options. However, investors should be aware of the potential fluctuations in returns for commodity-focused ETFs and the neutral stance on base metals.

Conclusion: New Business Opportunities in the Commodity Market

JPMorgan's recommendation to invest in commodities as a recession hedge opens up new business opportunities for entrepreneurs looking to capitalize on this market trend. Marko Kolanovic's endorsement of natural gas, agricultural commodities, and oil provides a clear direction for businesses seeking to enter the commodity sector. With natural gas projected to rally by 25% in the coming months, entrepreneurs can consider exploring opportunities in natural gas production, distribution, or related infrastructure development. Investing in renewable energy technologies that harness natural gas can also be a lucrative avenue. Agricultural commodities, backed by strong fundamentals and technicals, offer potential for businesses in the farming, processing, and trading sectors. Entrepreneurs can focus on producing and supplying crops like sugar, soybeans, and corn, or explore value-added products derived from these commodities. Similarly, the oil sector remains promising despite a slight decrease in value. This presents opportunities for businesses involved in oil exploration, extraction, refining, and energy solutions. Investing in renewable energy alternatives could also be a way to tap into the long-term transition away from fossil fuels. Entrepreneurs interested in serving investors in the commodity market can consider providing specialized services related to commodity-focused ETFs. Offering risk management strategies, investment analysis, or creating innovative ETF products could attract investors seeking exposure to commodity futures. While base metals currently hold a neutral stance, entrepreneurs should stay updated on potential catalysts that could drive their demand. Monitoring developments in Chinese stimulus and global manufacturing PMIs can inform decisions on venturing into businesses related to base metals. In conclusion, the advice from JPMorgan's strategist suggests ample opportunities for new businesses to thrive in the commodity market. By strategically aligning their operations with natural gas, agricultural commodities, oil, or providing complementary services in the ETF sector, entrepreneurs can position themselves to capitalize on the potential growth and profitability of the commodities industry. Article First Published at: https://www.cnbc.com/2023/07/24/jpmorgans-top-strategist-stays-bearish-stocks-but-thinks-this-asset-class-may-catch-up.html

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