JP Morgan strategists favor value stocks over growth as they expect the economy to maintain positive momentum.
Growth stocks have fallen in recent months, but “still aren’t outright cheap,” the strategists, led by Mislav Matejka, wrote in a commentary. Moreover, these stocks are still near multi-year highs, analysts said.
And while financials and commodities stocks have rallied strongly in recent months, they “are far from expensive, especially relative to underlying commodity prices and the magnitude of rate changes. potential by central banks”.
Banks benefit from rising interest rates because they raise the rates they charge on their loans faster and more than they raise the rates for their depositors.
As for earnings, “earnings in growth sectors are likely to no longer be exceptional,” the strategists said. Meanwhile, “earnings in some value sectors are rebounding.”
Bond yields are “the big driver” of stock prices, they said. Growth stocks benefited from weak returns. But, if bond yields rise as central banks raise rates, then the large valuation premium that growth stocks have enjoyed relative to value will continue to shrink, strategists said.
“Geopolitics could erupt at the end of the month,” the strategists said, presumably referring to the possibility of Russia invading Ukraine. But, “we do not expect this to last and call for the resumption of at-risk interns in the spring”.
When it comes to saying the economy will lose momentum, “We think we need to look through the widespread calls for a slowdown that are currently in vogue and remain bullish on banks, mining, energy , insurance, automotive, travel and telecommunications”, the strategists. noted. These stocks have done well this year, they noted.