J.P. Morgan strategists, led by Mislav Matejka, anticipate economic uncertainty impacting the outlook for risky assets in the first half of 2024.
The bank suggests that equities may face challenges negotiating earnings adjustments as economic activity slows down. However, the risk-reward for equities is expected to fundamentally improve once the U.S. Federal Reserve progresses with interest rate cuts, according to the note from J.P. Morgan.
Shifting Landscape: J.P. Morgan Eyes Equities Rebound in H2 2024 Amidst Potential Interest Rate Cuts
J.P. Morgan strategists, led by Mislav Matejka, project a changing landscape for equities, anticipating a rebound in the second half of 2024. The bank suggests that the risk-reward for equities could see improvement as the U.S. Federal Reserve considers interest rate cuts. The shift in monetary policy expectations may lead to a reversal of J.P. Morgan's underweight position on European equities, particularly in the context of easing economic uncertainties.
Equities Evaluation: J.P. Morgan Cautions on European Earnings Growth in 2024
J.P. Morgan expresses caution regarding European equities, projecting flat earnings growth in 2024, contingent on the absence of a recession. The bank warns that expectations of a re-acceleration in corporate topline and margins may face challenges due to weakening pricing and volumes. Despite maintaining an underweight position in European equities, J.P. Morgan notes that they are not inherently expensive, especially when compared to stretched valuations in U.S. stocks.
Sector-Level Analysis: J.P. Morgan Downgrades European Sectors, Maintains Overweight Position in Japan Stocks
At the sector level, J.P. Morgan downgrades European food retail, hotels and travel, and semiconductors to "underweight." Concerns over increased price competition impacting margins in food retail and potential challenges in chip stocks contribute to this downgrade. On a broader scale, the bank maintains an "overweight" position in Japan stocks and sees a "more realistic chance" for emerging market stocks to potentially outperform, especially with favorable economic growth in China.