Why JPMorgan's trading desk just reversed course and turned bullish on stocks

• "The Cautious call we held since the second half of January has proven overly conservative," JPMorgan's trading desk said.
• Although the house view for the bank is still bearish, the trading desk said they are now "tactically bullish."
• Tech stocks have rallied in spite of hawkish Fedspeak, while strong economic data means good news for future revenue growth.

JPMorgan's trading desk is switching up its view on stocks: it's now "tactically bullish," according to a note issued Tuesday.

"The Cautious call we held since the second half of January has proven overly conservative, primarily driven by a lack of strong conviction in MegaCap Tech earnings to beat a higher buyside bar, a lack of positioning tailwinds, and the potential for a pullback given the run over the last 3 months," analysts wrote.

While the house view on stocks at JPMorgan is still bearish, the trading desk conceded that they underestimated the earnings power of tech stocks like Meta and Amazon. Meta had a blockbuster Friday last week, soaring 20% after their earnings report.

What has changed in their outlook is that Big Tech stocks are "decoupling" from bond yields, analysts said. After Powell's hawkish remarks last week, tech stocks have forged onwards, even as bond yields have climbed higher. The Nasdaq index has gained 1.74% in the past 5 days as yields on the 10-year bill punched past 4%.

"This week there are few catalysts and even hawkish Fedspeak should not significantly impact the Mag7 names, propelling the index higher but at a potentially slower pace," analysts noted.

Beyond that, economic growth has remained robust. Last week ended with a blowout jobs report that recorded 353,000 new jobs added to the US economy. That's after consumer spending and GDP data also came in hot.

"That above-trend growth should continue to translate to positive revenue growth," JPMorgan's trading desk said. "While margin compression is a known risk, that feels more idiosyncratic."

The broader outlook for the investment bank, as outlined by analyst Marko Kolanovic, is that investors should favor cash over stocks.

"We remain cautious on risky assets and the broader macro outlook due to the interest rate shock (over the past 18 months) that should negatively impact economic activity, fading consumer strength, geopolitical headwinds, and expensive risky asset valuations," he said in a note last month.