The AI-driven Big Tech’s relentless rally continues to push the US equity market to new highs and JPMorgan strategists do not see this trend stopping any time soon.
Year-to-date, the US and Japan lead other markets, with growth stocks outperforming value, and large caps outshining small caps across all major regions.
“We continue to believe that this, ultimately unhealthy, high concentration and narrow leadership is set to stay for a while longer,” strategists at JPMorgan said in a Monday note.
“To buy Value and International stocks one needs to see a reflationary backdrop, in our view, but we could have the opposite,” they added.
Analysts at JPMorgan suggest that the recent rally in yields may be losing momentum, advising investors to consider lengthening bond durations once again.
With Federal Reserve futures returning to their October levels and a potential slowdown in activity momentum, it's noteworthy that equities remained stable despite a 50 basis point rise in US 10-year yields during January and February.
“We think that this is because investors assumed that the yields upmove is reflective of economic acceleration, as seen in recent bottoming out in PMIs. Still, we note that earnings projections for 2024 are not reacting positively – they keep coming down in most sectors,” they wrote.
Japan continues to be JPMorgan’s preferred choice for equities, with a neutral outlook on the US.
The US market, known for its growth orientation, could benefit from a stronger USD and has historically shown resilience during market downturns compared to other regions, strategists said. However, the cautionary note is that the US is currently trading at high relative price-to-earnings (P/E) ratios and earnings per share (EPS) levels, which may limit its future performance.
“We advised in October ‘22 to turn more positive on Tech, and have been OW Growth vs Value in ‘23, which helps the US, but the Tech run has already been exceptional, and there could be increased volatility in that space ahead,” strategists at JPMorgan said.