Forget Wall Street: when the rally is over, “it might not be a good place to take shelter.”
JP Morgan already predicted a few days ago that the stock market rally is about to end and that it was better for investors to sell. He has now gone further and said that for those who decide to maintain their risk appetite, the best thing to do after the rallies are over is to stay away from wall street. It “may not be a good place to take refuge this time”.
The American bank estimates that the first quarter of 2023 will mark the high point for equitiesThe stock rally doesn’t have much room left, so there isn’t much room left for the stock rally. “With this in mind, we believe that the opportunity should be taken to reduce the equity allocation and reduce the beta of the portfolio, taking advantage of the very weak performance of defensives since last summer,” they indicate.
Although they do not recommend following the move traditionally made by investors to leave international equities and return to the United States. We don’t think the best way to position ourselves for the next downside risk we expect is to favor the United States,” they say. S&P500. We advocate convergence trade from 2022, exiting the United States and entering the international market, and we advise to maintain it, even with possible weakness in equities in the future”, indicate the strategists of the bank, who point out that “The United States might not be a good place to hide this time. ».
As they explain, the MSCI China remains an “overweight” favorite, although they also believe that the FTSE100 there Euro Stoxx 50as well as Japan, “offer a better risk/reward ratio than US equities.“.
Why are they of this opinion? Quite simply. As they say in their latest equity report, because technology “passes from secular to cyclical”. “Despite our view that bond yields are at their highest level since October, we advised closing short positions in technology, The sector is unlikely to be a sustainable leader.“These analysts point out.
According to them, the sector “is still trading not far from its historical highs”, which “is not a good starting point”. Plus, say JP Morgan strategists, as if that weren’t enough, they don’t think the technology “is immune to potential earnings disappointments in the event of a recession.”contrary to what has happened in the last decade”.
“The long-term outperformance of the US versus Europe, which has been reflected in earnings performance, may be coming to an end. »Analysts note that “the valuation differential remains clear, with the US trading at 18x doubtful earnings, against the Eurozone and Japan at 12-13x doubtful earnings, and the FTSE100 at 11x”, point out -they.
Furthermore, they point out, from the American entity, that the euro zone “is trading at a bigger discount than usual compared to the United States”.even taking into account the difference in sectoral composition”. They also comment that on the fringes of the crisis, China’s reopening and lower gas prices “favor Europe, while politics could be a problem for the United States this year, particularly with regard to relates to the free trade agreement. DEBT CEILING“.
“We are certainly not advocating decoupling,” say these analysts, who recall that in the 1970s there were “long periods when European markets did much better than American markets, even when they were down sensitive. »
At JP Morgan, they maintained their advice to Europe “overweight” against the United States over the past 12 months, with a preference for the FTSE100 in Europe. “We are maintaining this regional bias for now, despite the Eurozone’s 25% relative outperformance since September, in USD terms. Although, the bank’s strategists comment, “it may be a good time to take profits on the Europe/US trade, perhaps closer to the euro expiration.” The reopening of Chinabut we do not recommend it yet.