The US stock market won't suffer from a stagflation drag but investors should watch for these 3 risks, says JPMorgan strategist

"The economy will continue growing above trend, eventually will price in these risks, and risk assets will recover as the year comes to a close."

• Stagflation won't hit the US stock market, predicted Gabriela Santos, global market strategist at JPMorgan.
• She cited strong economic momentum as well as good corporate and consumer balance sheets in an interview with CNBC.
• But she noted three risks JPMorgan is watching and warned Europe could be at a greater risk than the US.

Despite ongoing uncertainty across markets and heightened risks, stagflation won't hit the US economy, according to Gabriela Santos, global market strategist at JPMorgan. 

The US is bolstered by strong momentum and balance sheets, she told CNBC on Wednesday, pointing to recent retail sales data as reassurance the economy's trajectory is on the upswing.

"On a base case, the economy will continue growing above trend, eventually will price in these risks, and risk assets will recover as the year comes to a close," Santos said.

But she pointed out that JPMorgan is watching three primary risks: the geopolitical conflict and its impact on commodities, China's COVID-19 lockdowns, and the Federal Reserve's rate hikes.  

Russia's war on Ukraine triggered crippling Western sanctions, and commodity markets have gone haywire. Oil has whipsawed, as it's fallen into a bear market less than a week after hitting 14-year highs. What's more, the nickel short-squeeze that caused a trading halt in London last week and had to be halted soon after trading resumed this morning. 

In China, Santos is primarily focused on how the country's renewed pandemic lockdowns will impact global supply chains. That risk was apparent earlier this week as the lockdown of tech manufacturing hub Shenzhen forced Apple supplier Foxconn to halt operations there.

And with the Federal Reserve broadly expected to initiate the first of several rates hikes today, markets could continue to see volatility. Santos, however, did not voice concern over the Fed's impact on economic growth. 

"We do have higher inflation than we would like — than the Fed would like — to see, and perhaps we do remain in a period where inflation is above target," she said. "But we do still think that growth can remain above trend in the US for this year before settling back to normal closer towards the end of the year, and that's because of the strong momentum going into this."

Each of these factors contribute to greater uncertainty in the markets, but JPMorgan nonetheless doesn't anticipate a stagflationary drag for the US. In a separate note earlier this week, JPMorgan's quant guru said much of the negativity has already been priced in the stock market. 

Europe, on the other other hand, presents a more likely scenario for stagflation, Santos said. The bank views European markets with more caution.