J.P. Morgan strategists like value stocks over growth, as they anticipate the economy will retain its positive momentum.
Growth stocks have fallen in recent month, but “are still not outright cheap,” the strategists, led by Mislav Matejka, wrote in a commentary. Moreover, those stocks are still near multi-year highs, the analysts said.
And while financial stocks and commodities have rallied strongly in recent months, they “are far from expensive, especially relative to underlying commodity prices and relative to the magnitude of potential rate changes by central banks.”
Banks benefit from rising interest rates, because they increase the rates they charge on their loans faster and by more than they increase the rates for their depositors.
As for earnings, “the chance is that the earnings of growth sectors might not be exceptional anymore,” the strategists said. Meanwhile, “the earnings of certain value sectors are bouncing.”
Bond yields are “the big driver” for stock prices, they said. Growth stocks benefited from low yields. But, If bond yields rise as central banks increase rates, then the large valuation premium that growth stocks have enjoyed over value will keep shrinking, the strategists said.
“Geopolitics could flare up into month-end,” the strategists said, presumably referring to the possibility that Russia invades Ukraine. But, “we do not expect this to last, and call for risk-on internals to resume into spring.”
When it comes to talk that the economy will lose momentum, “We believe one should look through the widespread slowdown calls that are currently in vogue, and stay bullish on banks, mining, energy, insurance, autos, travel and telecoms,” the strategists said. These stocks have done well this year, they noted.
