JPMorgan strategists said Monday they maintain a cautious stance on small and mid-cap (SMid-caps) stocks as they “don’t see enough of a return to warrant taking on equity risk at this juncture.”

Historically, interest rates have not moved lower in short order, strategists highlighted, while growth appears weaker this time around and may not be able to provide the necessary boost.

SMid-caps, along with large-caps in most regions, seem unlikely to outperform 20-year US Treasuries from now until the next recession, with Japan standing out as the only SMid market “that seems to offer a rerating story at present,” JPMorgan pointed out.

In China, better trading conditions could continue through summer, driven by hopes that housing market weakness is easing before the US elections intensify.

Despite long-term structural concerns, emerging market (EM) investors remain underweight in China, with valuations having a 10-15% upside. Sector-wise, mining and energy are attractive due to low metal inventories, better demand, high free cash flow yield, and appealing valuations.

“Chinese equities’ rally continued last week on more favorable policy actions, that are in the general direction of raising demand, curbing supply and raising prices over certain utility-type services, plus solid trade data,” strategists wrote.

Overall, the market is now entering a seasonally tricky period, in addition to facing a challenging mix of persistently high inflation and profit margin pressures.

The Goldilocks view from Q1, which anticipated lower inflation and rates alongside earnings acceleration and a stable economy, “remains an inconsistent one,” the Wall Street giant highlighted.

“We look for more of a consolidation in equity markets over the next months. We believe that the gap that has opened up YTD between Fed and the equity market needs to close,” it said.